Thursday, January 31, 2013

Credit Cards

Here's were you can make some good deals and awesome bonuses. Or, here's were you can be left in the dirt. Credit Cards. Are they good or bad?

 Maybe you have heard of financial guru Dave Ramsey on the radio. He says that credit cards should never be used and that "responsible use of a credit card does not exist." When you have credit cards you get debt and spend more...even if you pay your bills off on time. Credit cards are a major problem in America. Credit cards are Bad for most people, but awesome for those who know how to use them. Since you are reading this post, there is a good chance you care enough to be a wise user of credit cards.

In my mind there are basically three reasons to use a credit card:

1. To get credit. If you want to buy a home some day or for business purposes, having good credit can help with a lower interest rate or to get a business loan. What about to get good credit for a good car loan? For me, I would say no most of the time. Usually, you can buy a cheaper car if you don't have the money to buy a nicer car.

2. To get bonuses and cash back.

3. Have a source to pay for an EMERGENCY. You should have or work towards an emergency savings, but in a very few cases, credit cards might be used as a last resort.

 1. NEVER pay any interest on a credit card. Have your bills paid off every month
 2. Never let credit cards INFLUENCE how you spend. If you buy something because you have the credit and not the money, you've LOST the game.
 3. Treat your credit card purchases as if you were spending cash. If you don't have cash to pay off the credit card, you can't make the purchase.
 4. Be ORGANIZED. If you can only keep track of one credit card, only have one.

Some fun facts about Credit Cards:

-Only 1/3 of credit card holders pay off their balance every month.
-Average debt of credit card holders is $16,000
-Average number of credit cards/per card holder: 3.5
-2.5 trillion in US consumer debt

Although these numbers might be scary, it is the reason banks and credit card companies offer so many good deals and cash back. If you follow the above rules, bonus and cash back credit cards are a great deal.

In later posts I will write about some great credit cards to get for bonuses and cash back. There are hundreds of dollars you get from getting these cards and I've done it. I will show you how to take the bait and leave the hook. If you are not able to use credit cards wisely, then DON'T get them. Me? I have about 8 cards right now with more to come!

What do you think about credit cards?

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  1. Great post, but the fact that you have 8 credit cards can damage your credit profile. That is 8 hard hits asking for more credit. It can lower your credit score. So the amount that you are gaining through a bonus can be eliminated if you are applying for a mortgage but can't get to the premium credit level. You could end up paying thousands more in interest for a few hundred in credit card bonuses. How would you reconcile that? -Trevor

  2. Yes, if you are planning on getting a mortgage or big loan in the near future (1-2 years), then I would say that you should avoid opening more than 1-2 lines of credit. However, if you aren't planning on buying a home, refinancing, or getting a big loan in the next 1-2 years, than getting a lot of credit cards will actually help your credit score in the long run. And the more credit cards you have, the less impact getting a new credit card will have on your credit score. Also, just because you have 8 credit cards does NOT = 8 hard hits. I got 4 new cards about 4 months ago and that = 1 hard hit. There is a lot of misunderstanding and confusion about credit cards and I'm actually planning on making a post about some of that and providing some other useful information about credit scores. If you understand how the system works, LOTS of credit cards are awesome.

  3. Great explanation. I'm not super familiar with credit scores, so I appreciate the clarification. One last question, don't hard hits on your credit score stay on for 7 years? I know bankruptcy does, so I'm assuming credit hits do as well.. By the way, I enjoy your blog. Good to hear from you!

  4. Hard hits stay for 2 years. The more recent the more impactful. I think if you stay under 5 hard hits you will receive the highest score. So you will receive the same score for 1 or 5 hard hits. Keep in mind this category is only a fraction of your total score. I have 10+ hard hits which is an "F" in that category, but I have "A"s in my other categories that are more important so my score is still 720-740. only 3-4 of those hard hits came from credit card application. Most came from renting, buying a home, phone services, etc.

    Yes, bankruptcy or delinquent accounts stay on your report for 7 years.

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