Should I follow my bank's advice?

Ask the Experts: Should I follow my bank's advice and open a new credit card?

I am recently divorced and need a more reliable car. I have no debt except my mortgage payment and I receive maintenance money from my ex-husband. When I went to my credit union I was told that I have no revolving credit history and that if I got a credit card through them (with no fees) and simply charged something on it occasionally, paid it off that month, it would build a good credit rating and my score would go up. I do not like having a credit card. I don't have a problem being responsible, but I want to remain as debt-free as possible since I only have about 5-6 years left until retirement. I figure I can pay off the loan for a car in that time. Should I go ahead and follow their advice? –Jan

Hi Jan,

Thanks for the question. We tackle credit questions a lot, and your question hits on some important fundamentals regarding how credit works, so this is a great opportunity to review some points we’ve hit before.

First of all, your credit union is correct about revolving credit. There are a number of different scoring models available for lenders to use, but most generally consider five primary factors when calculating your credit score:

  • Payment history
  • Amount owed to all creditors
  • Length of credit history
  • Amount of new credit
  • Types of credit in use

Your actual score is essentially shorthand – it’s an objective determination of your potential risk as a borrower. Lenders want to know how good you are with all different types of credit. That’s why using revolving credit responsibly usually helps your score. By building a positive history of using a mixture of credit types, you appear to be less and less of a lending risk and your score goes up.

Now, to the question of whether or not you should follow your credit union’s advice. You need to weigh the pros and cons and decide what makes the most sense for you.

One thing to consider – simply opening a new credit card is unlikely to immediately improve your score. As I said before, lenders want to see you use credit responsibly over time. There’s no saying exactly how long it would take using a new card to build your credit to a place where your new car loan would be substantially lower.

It is in your overall benefit to have a long, diverse credit history, but building that takes time. If simply having a credit card makes you uncomfortable, and you’ve managed your finances successfully for years without one, it’s up to you to decide if the potential benefits of an improved credit score (such as a lower interest rate on loans) is worth the tradeoff.

Another thing to consider – if you do decide to open a credit card, it’s not a bad idea to shop around first. You may find that your current financial institution has the best deal, but they may not, and there’s no shortage of credit card options available to you.

So, in short, yes, using a credit card wisely is very likely to improve your credit score and help you get better rates. However, it takes a little time to see that improvement. Consider your short-term and long-term goals and see which option makes the most sense for you.

I hope that helped! Good luck!

Jesse Campbell is the Content Manager at MMI. All typos are a stylistic choice, honest.