Thoughts on Credit Cards

mysticl · August 2014

Maggie0829 said:

AprilH81 said:

Maggie0829 said:

AprilH81 said:

emmaaa said:

Since many of you have mentioned alternatives to credit cards to build credit, what are some of the best ways to do that?

Any monthly installment payment (house payment, car payment etc.) would help, but they all involve actual debt for some period of time.

If used responsibly, you can use credit cards to build your credit history and credit score WITHOUT accumulating debt.

But I consider this good debt (especially a house payment or school loans) because you are building credit but you are also owning a home which you could potentially sell for more then you bought it for (or that is the hope of many home owners) and get tax credit because of owning it. And with school loans you are bettering yourself and setting yourself up for a better job in the future.

There is good debt and bad debt. Credit card debt is bad debt because the only thing that comes out of it is high interest, more out of your pocket and hurting your credit score if you can't make the payments.

If OP is in the market for a new(er) car or a house and a side benefit of the loan is a better credit score then I personally don't have a problem with it.

I just don't think the OP should go buy a car in order to get a higher credit score.

Since the OP and her BF/FI want to improve their credit so they can get a house in a year or so I think the best method is a credit card (used responsibly of course) instead of using money that could be saved for a down payment on a car payment.

I agree with you completely. I was just pointing out that not all debt is bad. Some debt is actually good, while credit card debit is never good to have.

Though sometimes a credit card is the easiest thing to get. I got my first one my freshman year of college. It had a $500 limit on it and I paid it off every month. I basically used it instead of carrying cash. If you lose cash or it gets stolen you are basically screwed. If you lose or have a credit card stolen you report it and then you can challenge any charges. Which I have done successfully.

emmaaa · August 2014

AprilH81 said:

Maggie0829 said:

AprilH81 said:

emmaaa said:

Since many of you have mentioned alternatives to credit cards to build credit, what are some of the best ways to do that?

Any monthly installment payment (house payment, car payment etc.) would help, but they all involve actual debt for some period of time.

If used responsibly, you can use credit cards to build your credit history and credit score WITHOUT accumulating debt.

But I consider this good debt (especially a house payment or school loans) because you are building credit but you are also owning a home which you could potentially sell for more then you bought it for (or that is the hope of many home owners) and get tax credit because of owning it. And with school loans you are bettering yourself and setting yourself up for a better job in the future.

There is good debt and bad debt. Credit card debt is bad debt because the only thing that comes out of it is high interest, more out of your pocket and hurting your credit score if you can't make the payments.

If OP is in the market for a new(er) car or a house and a side benefit of the loan is a better credit score then I personally don't have a problem with it.

I just don't think the OP should go buy a car in order to get a higher credit score.

Since the OP and her BF/FI want to improve their credit so they can get a house in a year or so I think the best method is a credit card (used responsibly of course) instead of using money that could be saved for a down payment on a car payment.

FI just bought a new car in February since his Jeep blew up and we are always on time with those payments so I know that will help with his credit. But we really aren't buying something new anytime soon. FI is buying a used truck form a friend for about $1,000 in September and I will be driving the car. Seriously, my car looks like it could be in a demolition derby, but it runs wells and gets me where I'm going.

Once FI finishes school and we figure out where he gets a job, we will be wanting to buy/build a house (buy if we move, build if we don't). His field is much more lucrative than mine so we will have to go where he finds a job, but we really hope to stay where we are especially since we already have land to build on (and one location even has a well and septic tank already on it).

Credit cards seem to be a quick method but it may also be about 3 years before we build (when we have a child and thinking about a second). I don't think it would hurt for me to get a credit card for a few bills here and there or for gas and pay it off each month. This way I can build my credit since he will be building his with the car payment.

How much do student loans help (if you pay on time) because Lord knows I have student loans?

thelastdreamer · August 2014

Just wanted to say that I'm pretty sure it was my thread that inspired this thread, and I REALLY appreciate a lot of the things people have said here about building credit without getting a credit card. These are a lot of things that I had in my head when reading through the responses I got on that thread.

When I said my FI and I were uncomfortable with a credit card, I didn't mean uncomfortable with, as someone said "good debt" - we both have car payments and payments on other long-term investments and both have good credit scores. I just think we are both the kind of people who would get in trouble with credit cards so we've chosen not to have them and build our credit other ways.

I totally respect that others can use credit cards wisely and don't think they are "bad to have" just not the best for me personally, as someone who does struggle to budget well sometimes (as evidenced by my other thread ... I thought it was odd that people were telling me I was bad at budgeting and telling me I needed to get a credit card in the same post ... bad budgeting + credit card = yikes in my head). I hope that eventually I'll improve at budgeting (it is definitely something I am working on) and be able to handle using a credit card. But for now, I need to avoid them.

AprilH81 · August 2014

thelastdreamer said:

Just wanted to say that I'm pretty sure it was my thread that inspired this thread, and I REALLY appreciate a lot of the things people have said here about building credit without getting a credit card. These are a lot of things that I had in my head when reading through the responses I got on that thread.

When I said my FI and I were uncomfortable with a credit card, I didn't mean uncomfortable with, as someone said "good debt" - we both have car payments and payments on other long-term investments and both have good credit scores. I just think we are both the kind of people who would get in trouble with credit cards so we've chosen not to have them and build our credit other ways.

I totally respect that others can use credit cards wisely and don't think they are "bad to have" just not the best for me personally, as someone who does struggle to budget well sometimes (as evidenced by my other thread ... I thought it was odd that people were telling me I was bad at budgeting and telling me I needed to get a credit card in the same post ... bad budgeting + credit card = yikes in my head). I hope that eventually I'll improve at budgeting (it is definitely something I am working on) and be able to handle using a credit card. But for now, I need to avoid them.

That is awesome that you know yourself well enough to know that you can't deal with credit cards at the moment. A lot of people don't know (or don't care) enough to think things through and that is where the real trouble starts.

If you head over to The Nest, there are several helpful ladies on the Money Matters board who will help you with your budget and see where you can make things work better.

emmaaa · August 2014

thelastdreamer said:

Just wanted to say that I'm pretty sure it was my thread that inspired this thread, and I REALLY appreciate a lot of the things people have said here about building credit without getting a credit card. These are a lot of things that I had in my head when reading through the responses I got on that thread.

When I said my FI and I were uncomfortable with a credit card, I didn't mean uncomfortable with, as someone said "good debt" - we both have car payments and payments on other long-term investments and both have good credit scores. I just think we are both the kind of people who would get in trouble with credit cards so we've chosen not to have them and build our credit other ways.

I totally respect that others can use credit cards wisely and don't think they are "bad to have" just not the best for me personally, as someone who does struggle to budget well sometimes (as evidenced by my other thread ... I thought it was odd that people were telling me I was bad at budgeting and telling me I needed to get a credit card in the same post ... bad budgeting + credit card = yikes in my head). I hope that eventually I'll improve at budgeting (it is definitely something I am working on) and be able to handle using a credit card. But for now, I need to avoid them.

Yeah, Fi and I never really wanted them but since I have basically no credit, I figured it was worth a shot to explore getting one and to not even carry it with me. I had the same mindset as you that we did not NEED one, but at this point in our lives and they way we handle finances and the fact we just bought a new car (in his name) it makes sense and will probably work for us.

I think it is important to know whether or not you are "financially responsible" (I put that in quotations because I couldn't think of a better term, not that you aren't responsible) enough to manage a credit card. Honestly, I think it is good when people like you realize they aren't ready, and may never be, for one.

arrippa · August 2014

sarahufl said:

I have awesome credit. My parents raised us very well in regards to how to spend money, which I am incredibly fortunate for.

I would suggest a VISA or AMEX if you are only getting one. I had some problems with a Capital One Visa last year when I was in Bangkok. I had a travel alert and they straight up cancelled my card, 2 days into a 2-week trip. Their customer service was an absolute disaster when I was trying to deal with it. Luckily I had other cards, plus was traveling with H and 2 friends or else I could have been in deep shit without a card.

My understanding is that store credit cards can be bad for your credit, but I do have an Old Navy Visa because I get great rewards and spend (ahem, probably TOO MUCH) money at Old Navy/Gap.

My advice is to never charge what you can't afford to pay off at the end of every month. I don't care that my APR is 22% on my cards simply because I do not pay interest on them. Maybe if you are a first-timer, get the one you can have 0% for the first year, just so you can practice making payments.

Credit cards are not evil, you just have to be responsible with them. Good luck!

Stuck in the darn box

I have an Old Navy/Gap card. Every time I think about cancelling it, another reward shows up. I also have an Amazon Visa (Chase, I think) that also has great points. I pretty only use that for Amazon purchases though. For everything else, I use my Amex card. I did get in trouble with credit cards in college, but I managed to pay it off. I am actually currently car shopping so I have been watching my credit score like a hawk.

CMGragain · August 2014

My son-in-law is an engineer, making $75K. He was raised in a conservative Asian-American family, and always paid cash for everything. He had $80,000 in a savings account.
Guess what? He couldn't qualify for a home loan. No credit history. He was turned down for major credit cards for the same reason. He had to get a deposit secured credit card, make small purchases and pay it off every month for a year before a mortgage company would consider a loan. He learned the hard way.
They now own a nice house, but he was shocked to find out how important credit cards can be.

JoanE2012 · August 2014

We have the United Mileage Plus card. We put everything we can on that card, and pay it right off every month. We just put down payments for cars, all grocery and gas, heck, we even just charged a new $10k central air unit! As a result, we've racked up lots of miles. We've flown free to the Caribbean, Central America, Europe and will be flying to Hawaii in the fall for free!

As I mentioned on a previous post.....there are lots of other benefits that come with a credit card. Depending on the card, you can accumulate points/miles for free stuff, get price protection (if something you buy goes down in price within 60 days, you'll get a credit), zero liability (if fraud occurs on your account), roadside assistance, travel insurance, and so on. You don't get that when you pay with cash.

Just remember to pay off the balance in full each month and you'll be fine.

pinkshorts27 · August 2014

I have a CC. I never spend more than I have in the bank. I treat it like a Debit Card and pay it off every month.

StitelME · August 2014

I guess I'll be the story of not being "financially responsible." My FI and I are currently stuck trying to dig our way out of credit card debt. We are about $5K under - a large chunk of which started to build the summer after I graduated from grad school, when I was between my school job and my now full-time position but was on my own and focusing on studying for the CPA exam rather than a temporary part-time position. I definitely fell into poor spending habits that I had not been prone to prior to that summer and now find myself struggling to right the course.

Preparing for our wedding has exacerbated our tight budget (which we had at least been sticking to for the most part, so our CC balance at least wasn't increasing much more) and it's kept us from paying things off in full. So now my credit score is mediocre at best - though I always pay more than twice the minimum payment, I still can't pay the cards off in full. Once the wedding is done, my FI and I are planning on scheduling a meeting with some sort of financial advisor to try to figure out a way to pay off our cards w/o bankrupting us since we are looking into buying a townhouse, etc. in the next couple of years.

TLDR: Don't be me.

garnetandgold60 · August 2014

I've only had a credit card for the past year or so (since graduating college), so I have a decent credit score but not an awesome one.

+1 for paying on time, -1 for not having one for a long time.

It's currently a Discover card because that was the first one that would accept me. Since I got married we've added each other to our accounts, my question is, should we keep the Discover and just use it for gas (or whatever the cashback bonus is) or just get rid of it and keep one Visa card?

I'm definitely new at all of this (although I've been balancing a checkbook since I was 14) so I bow down to the wisdom of you Knotties!

AprilH81 · August 2014

garnetandgold60 said:

I've only had a credit card for the past year or so (since graduating college), so I have a decent credit score but not an awesome one.

+1 for paying on time, -1 for not having one for a long time.

It's currently a Discover card because that was the first one that would accept me. Since I got married we've added each other to our accounts, my question is, should we keep the Discover and just use it for gas (or whatever the cashback bonus is) or just get rid of it and keep one Visa card?

I'm definitely new at all of this (although I've been balancing a checkbook since I was 14) so I bow down to the wisdom of you Knotties!

Don't cancel the Discover card... It is okay to not use it, but assuming that is the only card in your name only if you cancel it your score will go down.

Part of your credit score is the length of credit history, and if you cancel your only line of credit your score goes down. 15 years from now you should try to keep it open because if you cancel it then you lose the card that was open the longest.

garnetandgold60 · August 2014

AprilH81 said:

garnetandgold60 said:

I've only had a credit card for the past year or so (since graduating college), so I have a decent credit score but not an awesome one.

+1 for paying on time, -1 for not having one for a long time.

It's currently a Discover card because that was the first one that would accept me. Since I got married we've added each other to our accounts, my question is, should we keep the Discover and just use it for gas (or whatever the cashback bonus is) or just get rid of it and keep one Visa card?

I'm definitely new at all of this (although I've been balancing a checkbook since I was 14) so I bow down to the wisdom of you Knotties!

Don't cancel the Discover card... It is okay to not use it, but assuming that is the only card in your name only if you cancel it your score will go down.

Part of your credit score is the length of credit history, and if you cancel your only line of credit your score goes down. 15 years from now you should try to keep it open because if you cancel it then you lose the card that was open the longest.

Thanks for the advice! DH and I will definitely keep it open then and use it for the cashback (this round is for gasoline!).

thisismynickname2 · August 2014

Everyone else has provided great advice. I've had credit cards since high school as my parents made a point to teach me responsible budgeting and finance.

If anyone is worried about getting in over their head with a credit card, here's a trick for you.

Say the rate on your card is, oh, 10%. You're going to a wedding and put a $100 gift from Williams Sonoma on your credit card. Let's say you miss the payment completely or only make the bare minimum monthly payment the card "allows" you to get away with. Once that $100 goes past the due date, 10% is assessed. That wedding gift has now cost you $110. If you do the same thing the next month, now it's cost you $121. (My math is not exact; I don't know what happens if you keep chipping away with minimum payments. Say you paid $20 with $80 left over- next month you owe $88 so now it's cost not $100 but $108.)

If you think about how that interest keeps compounding, you'll be more incentivized to pay the statement balance due on time.

FI actually pays all of his bills on his United Mileage credit card. We're putting the wedding on it too and paying the balance with cash from savings accounts. Why? Miles! We saved a boatload of money on our honeymoon plane tickets. We already have enough saved again to get free plane tickets to Central America for a first anniversary trip. Find a card with rewards!

southernbelle0915 · August 2014

My two main cards are 1) Chase and 2) Delta American Express. The Delta AE is our combined credit card.

We use the Delta one when we can to rack up miles because we like to travel. Then we each have a Chase credit card for personal purchases.

We've built credit by getting these cards and paying them off (IN FULL) every month. We purchase everything on our cards - groceries, gas, utilities, etc... everything except our mortgage goes onto the card. Since these are all things we'd buy anyway and we're staying in budget, we pay it off every month. It's worked pretty well and is probably a good habit to be in anyway.

jnrsgirl · August 2014

If you want to build your credit, there are many options. Credit cards can be an easy way to do so. Ifyou just use the card to pay for your normal monthly expenses and then pay it off that same month. 1) you build good credit 2) you don't carry a balance therefore you pay no interest and 3) if you have a card that earns rewards, then you are basically getting paid to pay your normal monthly bills.

When figuring your credit score, we look at numerous factors such as do you make payments on time... do you make more than the minimum payment... what is the high and low balance for the statement... what is your debt to credit limit ratio... do you carry a balance from month to month... what is your debt to income ratio... how aggressively do you use the card (aka spiking balances and then lulls while it gets paid down)... and how often are you requesting more credit...

If you can be responsible and will be able to control your spending and avoid spending what you don't have then credit cards may work great for you. Just don't get into the habit of "well I can pay it back a little later."

Take the time to find a card that works for you. There are dozens of great rewards cards with no annual fee that offer great perks. I love my Chase Freedom. It has purchase protection is case an item I bought is damaged, lost, or stolen; etended warranties; travel protection and trip insurance; car rental insurance; price protection so I get a refund whenever an item I buy goes on sale or drops in price within 90 days of the purchase. Plus I get great rewards. We use it for normal monthly bills and pay it off every month so I never pay interest. You can't beat getting all those perks and cash back for paying your regular bills (with no fees for me!).

AlexisA01 · August 2014

emmaaa said:

A thread over on Etiquette made me start thinking of this:

I am 23 and FI and I want to build a house whenever we officially "settle". FI will be done with school May 2015 and if he finds a job in our area, we definitely want to stay. Now, we have land to build on already that will be "gifted" to us if the time is right.

At 23, I have limited credit. My credit score is decent but I haven't ever had a credit card and neither has FI. Our fear is over spending and going into debt. After seeing others suggest that a credit card is a good way to build your credit (honestly, we could use it to pay bills and just pay off the card the same month) I've started thinking about it. We both need to build our credit before we try to start getting a loan to build a house, obviously.

So what are your thoughts? What companies do you reccommened or ones to stay away from?

Stay away from Credit One...They have a logo the same as Capital One. They are just scammy. I use my Citi Card, Chase Freedom, and Capital One and I love it. I also have cards from the credit union I belong to.

Thoughts on Credit Cards

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