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A Little Debt Can Go a Long Way

Monday’s show was all about how to get in it to win it -- how to use the system to your advantage so you can make the most of your money. To do that, believe it or not, is going to require that you take out the plastic.

Carmen spends a lot of time advising her viewers how to get out of credit card debt. But here’s the rub: In order to have a great credit score, which is becoming more important as credit tightens everywhere, you need to use your credit cards and actually carry some debt, some of the time.

Credit guru John Ulzheimer explained what would make up the optimal credit report:

-Be over 50. Like wine, credit scores tend to get better with age because people develop longer credit histories over their adult lives.

-Never give someone an excuse to say something bad about you to credit reporting agencies. Anything such as late payments, repossessions or foreclosures can hurt your score for 7-10 years.

-Don’t overlook the inherent value of properly managing debt. Have a good mix of credit cards (about five is best) with small amounts of different kinds of debt spread among them – think mortgage, auto loan, personal loans, student loans -- all good debt if you know how to manage it.

Sure, it might not make logical sense to want to carry debt to enhance your credit, but carrying a small balance -- ideally 1-2% -- and paying the minimum each month shows credit agencies that you can manage a revolving balance properly. And that’s a huge key to raising your score and thus making it easier and cheaper for you to borrow money.