I wanted to share my love/hate relationship with credit cards. My ultimate goal is to share so much knowledge with you that your hate of credit cards will turn into a love/hate relationship.
I used to hate credit cards because I didn't understand them and I didn't use them to my advantage. It may be helpful to read my post about credit reports so that this post makes even more sense to you.
When I turned 18 my first credit card had a limit of $1500. My 18 year old eyes thought unlimited borrowing of money. Look at all this I can use and then pay back later. Little did I know I was going to be facing a huge credit card bill within a few months. By that time I already had another credit card and that one had a large balance as well.
I was in over my head. I had no idea how this was affecting me until later on when I needed to get a new vehicle. My credit got ran what feels like 20,000 times at the dealership, I got approved from a less than ideal bank, with a less than ideal rate. All because I abused my credit cards.
I needed to rebuild my credit. I started off paying more towards the one with the largest interest rate. Any extra money went to that card. I needed to bring it down. This was a tough battle as a full time student with a part-time job.
Eventually I got my credit cards paid off, and now I use them to my advantage. One of the credit cards that I had when I turned 18 is still around. I will not close that thing because it is the thing that is reporting on my credit bureau the longest. I want the payment history on that card to report as long as possible.
This is what I want to pass on, using credit cards to your advantage. You would think that my early experience with credit cards would steer me away, but no, I got smart.
Credit cards shouldn't be something you are afraid of. They can be the heartbeat of your credit report. Why? Because they are always open. As soon as you pay off a loan, it's done, no longer an open account on your beloved credit bureau. So now you are stuck with your credit cards, and you better have at least two credit cards. I mean it. Now we all hate paying interest, that is just money out of your pocket, but if you only keep a small balance on your credit cards, and I mean double digits small. Why double digits? Because you're going to keep it on your card and you don't want to pay a high interest on a 3-digit number or even a 4-digit number. Keeping $10-50 will just show usage on your card, and the credit bureau loves usage.
Now while I have that one card that has a small running balance I have another card with cash rewards. I use this card for gas and groceries, ya know the stuff you usually use your debit card for. Why not put it on a cash rewards card and get cash back? It seems silly if you don't take full advantage of your credit card. I will say this about rewards cards. Focus in on the cash rewards card, not the points. Points take too long to build up to get anything out of them. As a great example, my friend had a points card and when we looked at everything, despite earning 1 point for every dollar, it took like 2500 points just to get a vacuum. UHHH that doesn't seem right. So cash rewards is where its at. Put the money back in your pocket. Or even back to your credit card.
One of my other credit cards is for a home improvement store. Store credit cards have high rates, extremely high rates. Rates so high that it can make you cringe. So why do I have this? Because home improvement stores have those special offers that have 6-12 months no interest. Obviously make sure that you are able to pay it off in that time frame. I had to buy all new appliances. Instead of paying cash for these I just put it on the credit card and paid it off over the special offer time. Now if you don't pay it off before the offer ends you will pay interest on the whole purchase. So please be smart about it. I mean I am currently going through the mortgage process and I can't wait to start my home improvements and making it my home. However, instead of going crazy on my credit card I have a list of priorities that I can handle. No home improvement debt for me.
Travelling, I LOVE TRAVELLING, and if do so as well, use your credit cards. Those are easier to cancel if you misplace your wallet, and your hard earned cash isn't missing if someone goes crazy with what they found. It would suck if you lost your debit card in another country, because you are stuck with no cash, and it takes banks a few days to investigate and get your money back. Use your credit card, because while they are investigating you can get access to your cash through other means. In addition, if you travel internationally, usually the foreign transaction fee is free or cheaper on your credit card. Again, saving some money and utilizing your credit.
Credit cards can be used to your advantage. Be smarter with your money and credit. It will help you reach your credit dreams faster. Now I need to get back to putting all of my paperwork together to send to the mortgage officer. This is stressful and I am only at the beginning.