I'm pasting my reply to a credit-related thread and bolded some relevant parts:

quote:

I sell mortgages...whether you meet our minimum credit score or have impeccable credit, it doesn't mean jack with regard to the interest rate you're going to get. If you have *shit* credit, you may be unable to get approved by a bank and will have to deal with a 'b-lender' or 'sub-prime' lender who has higher rates, but that's another story. from a credit rating standpoint, it's not important whether you carry a monthly balance or whether you pay the card off in full each month. Although the proportion of outstanding credit to your credit limits is relevant, it's not nearly as relevant as a clean repayment history. the #1 factor affecting your credit rating is repayment history. whether you make the minimum pmt required or whether you pay more doesn't really matter...just pay it ON TIME. anything more than 30 days late can negatively impact your credit score. #2 factor that will kill you...collections. never let something go to collections, if you can avoid it. it fucks your score pretty hard and, even once paid, stays on your credit report for 6 years. A collection tells people that not only do you not pay your debt on time, but you are either unable or unwilling to pay it at all. i.e. it doesn't matter how much you make or how much money you have in the bank if you're unwilling to pay your debts. another factor...too many credit inquiries. i.e. don't apply for a bunch of products all at once. you look like a 'credit seeker' and if you have more than a few inquiries in a short period of time, your score will start to drop. Pick one or two places to apply and leave it at that for a few months, at least. another factor...going over your credit limit. typically, banks will let you go slightly over your credit limit on credit cards and lines of credit. that temporarily drops your score if the over-limit balance is posted to your bureau (creditors post updates at least once per month or sometimes only once every 2-3 months) I'd also avoid dept store cards, particularly Sears, unless you have good reason to have one. Their rates are typically much higher than Visa/MC/Amex and they seem to be notoriously inflexible when reporting late payments. I've seen many clients with otherwise perfect credit, yet have a late payment or two showing on their Sears account. Getting a credit card, even if you always pay cash, is a good idea. The idea is to establish a credit history. Having *no* credit score (i.e. you have no credit products or credit history) is not a good thing. It's not as bad as having a crappy credit score, but in terms of qualifying for a mortgage or other credit products it's going to make life very difficult. So what if you have no debt or have a lot of money in the bank...that doesn't tell a bank how you're going to repay their loan/mortgage/credit card. The largest indicator of future repayment behaviour is past repayment behaviour. It's not just about a CAPACITY to repay, but a WILLINGNESS to repay. Having a credit history is the best proof you can provide that you will continue to repay your debts on time. So get at least one credit product and dilligently make your payments on time. there are 'hard' and 'soft' inquiries for your credit report. when you apply for something, it's generally a 'hard' hit...i.e. the creditor can access the contents of your credit report and this counts as a formal inquiry. too many hard hits in a short period of time will drop your score. anyone accessing your bureau will see a list of these inquiries for a certain period of time (3 years?) a 'soft' hit, as I understand it since I only make formal inquiries in my position, is when someone accesses your score without actually requesting a copy of your bureau. e.g. when your existing credit card company is contemplating increasing your credit limit. this is generally all automated and they have some matrix whereby if you have a score of ______ and have made payments on time, they'll increase your limit by _______. Soft hits do not count as formal inquiries, do not impact your score at all and anyone accessing your bureau with a 'hard' hit will not see these 'soft' inquiries. hope that helps...