Liz Weston

Dear Liz: Is it true that no credit is as bad as bad credit? I recently paid off my house and have no car loans. I use four credit cards every month, including one for automatic monthly bills. All are paid in full as soon as I get the bills. So practically speaking, I have zero debt. Am I making a credit history if I don’t have debt? I had excellent credit scores before I paid off my house.

Answer: You still do. You don’t have to carry debt to have good credit scores.

The myth that you do — that the only people with good credit are the ones in debt — is unfortunately a persistent one, typically spread by people who don’t understand how credit scores work. Rest assured that using your credit cards lightly but regularly, and paying the balances in full every month, is the right thing for both your scores and your finances in general.

Your paid-off mortgage should remain on your credit report for years to come, and it will continue to help your scores. Scoring formulas typically reward evidence that you can handle a variety of credit, including installment loans such as mortgages and revolving debt such as credit cards. Even after the mortgage disappears from your credit reports, however, your consistent and responsible use of your credit cards should keep your scores high.