Myths about credit scores
You have to be in debt to have a good credit score. Lin calls this a big misunderstanding."People with scores above 800 have less debt than those with credit scores of 600 and 700," he says.
To get those perfect scores, they did everything right. Credit card bills were paid on time 99.9 percent of the time, their credit cards were older and they had a lot of cards but not a lot of debt on those cards. That last factor is called a credit utilization ratio. You look at how much money you have access to versus how much of that money you are using.
Lin suggests that you never use more than 30 percent of the credit you have available to you. He says people with perfect scores had an average of 6.7 credit cards, but they obviously weren't maxed out or even close. The average age of those cards was 10.24 years.
I asked Lin about the reader who was upset that his credit was only fair even though he was worth millions, paid off his one credit card in full each month and had never been bankrupt or defaulted. Lin says it's because he has just the one credit card.
