Well I’ve kept my mouth closed for long enough and figured that it was time to chime in. Initially when James started to discuss his opinions on credit cards I listened and figured it was best to let him rant and rave, even if I don’t entirely agree.
Now that the whole world has come back in favor of the almighty visa, I figured that it would be good to give my two cents worth.
1) Credit Cards to improve your FICO. On the one side I can see the argument that the system is flawed to encourage the use of credit cards, particularly for those with bad credit. That being said, life is all about figuring out how to play the game. Since using a credit card appropriately can improve your score, then I advocate you use this in your favor by charging wisely. Please note that this doesn’t necessarily mean that you need to charge your whole life on a card. Merely putting a bit on auto pay and then auto paying the bill will do the trick to help your rating. This is a good step for those just starting out or trying to improve their credit.
2) Credit Card Rewards. I’m afraid that this is definitely an area that James & I disagree. Particularly now that I get so many points from traveling for business, there are some real incentives to using a card to charge just about everything you can. I remind James of the fact that this is allowing us to pay for our next trip out to the west coast, which would have otherwise cost us around $800 and was instead a tenner for both of us. Even if there is a fluke once a year you are still better off with the incentives, particulary because I am earning interest on this money before my bill is due.
3) Credit Card v. Debit v. Cash. While I can understand the fact that there are certainly studies out there that demonstrate that people are likely to spend more money with plastic, I don’t believe that for your wise consumer (yes, those smart folks we are talking about) it makes that much of a difference if it is a debit versus credit card. If you know how to manage money, you won’t spend over what you have in the bank. If you can’t balance your finances then you are also going to run into issues with overdraft charges and late fees. Either way, poor financial habits will kill you.
I will say, there are a couple of things that folks who are learning how to use credit cards wisely should do:
1) Balance your accounts carefully, as you should anyway. While I’ve never been one to balance my physical checkbook (especially now that I have eChecks) I do check my accounts online frequently and pay attention to my balance and expenses.
2) Automate things. Put it on your calendar, set an auto-pay system where you know the money will come out with out issue or error, do whatever it takes to make it easy and flawless.
3) Watch your spending. As with all spending in life, don’t buy something simply because you get more miles from it. Just because something is on sale, doesn’t mean it looks good on you, or that you need it. I know that this principle applies in general, but I think it is important not to fall into the trap of spending more just to get the points.
4) Watch the fees. Since most credit card offers will give you a good incentive to start with, and then want to charge you a fee after a year, make sure to avoid the fee. Mark you calendar to call them up eleven months later to either get them to waive the fee for staying with them (tell them you’ve got another offer), or cancel the card and start another with a better offer. You credit score only notes how many checks you’ve had in a year, so one or two won’t make a negative difference. Keep in mind that you can often keep the same miles program but switch cards to get the introductory offer. That way I can keep the majority of my miles with United, but not get charged an annual fee. Please note that this means you are still keeping one credit card for history sake over time, but you have one that rotates. For those of you who want the points but don’t want to use a credit card, you can look into offers that are linked to your debit card (I think I’ll find one of these for James…)
I guess that’s about all for my tired brain tonight. Thanks to all of our reader’s comments. I appreciate any comments with further suggestions on how to use cards wisely, if I’ve missed any good tips.