Item — HN Reader

I suspect the statement is meant this way: in order to build credit (to buy a house later for example), you need to get in debt: you need to get credit cards, loans, etc... and "climb the ladder". Only then will you have a credit worthy status to get a loan for a house.

When I came to the US from Europe, I had no credit history and that made it difficult to get any type of credit card, or loan, or anything. I thought it was a catch 22 since I couldn't build credit because I didn't have credit, but there is this thing called "Secured Credit Card", where the bank lends you your own money (that you deposit) to see if you can repay yourself. Had to do that for about a year, and I also managed to get a Macy's card with a $100 credit limit (yes, one hundred) that forced me to shop there to "build credit".

After that the climbing of the ladder started with credit limits increasing slowly, etc... up to the point that I was able to get a loan for a house.

There's a bit of strategic planning to building credit worthiness, and that requires you getting into some "managed debt". I think that was the spirit of the comment you are asking about.

4 comments

I've always thought it was a little ironic that increasing your credit score is done by getting more credit line than you need then not actually using it (reducing the percentage of your credit line that you do use assuming expenses are fixed).

This is because credit score is a measure of two things. The first one is obvious - that you are capable of paying your debt if you find yourself in it. The second one however is how valuable you are to the banks. What good are you to them if you never borrow more money than you need? Their best customer is always in debt but regularly making payments (with interests of course).

American Express has helped me out twice with this because they are a global entity. Originally became a member in Germany, moved to the UK and all I had to do was change my address with Amex and I had a UK credit card with no credit history in that country. I did the same thing when I came to the US, called them up and said I’m in the US now. Got a new card and my credit score was at 700 or so within a couple of months.

That's funny. I've never been in Credit Card debt and I have a 700+ score.

you are completely correct, I'm surprised it even needs to be explained.

I live outside US. I had no idea.

Here you get full credit worthiness based on your income, savings and loans.

The income and (by tax proxy) savings are public, so no loans and some income and moderate savings will give you full credit.

A history of regular payments on a card with a $100 limit doesn't require you to go into debt in any way except for an accident of nomenclature. Pay your $5 every month; you'll have normal credit and no carried debt.

You can't build a functionally useful credit score that way. The amount of credit is accounted for in the model, not just the percentage used.

Amount of credit is accounted for in the model, yes. But it's not the only thing accounted for.

If it is that easy, isn't it worthless?

No. That is how you build a credit score. If your goal is to build a credit score, it is not worthless, and it is also not a risk to your personal finances or a means by which it is even possible to get into nontrivial debt.

A large part of the credit score concept is to flag people for whom paying a trivial bill on time is difficult.