Yes, the headline doesn’t lie. I believe using credit cards in today’s world will lead you to a better life. Being that I am so anti-debt and a frugal spender, it may be hard to believe that I am advocating spending using credit cards. But, there are some huge upsides to spending on credit cards if you do it right.
When I first started this financial advice article, I came up with the initial title as being, “How to use credit cards and a home mortgage to your advantage.” Then I thought, “No, home mortgages still suck.” So, that leaves us with credit cards. There is one good aspect of a home mortgage I can think of, and I’ll relate that further in the article. But, the advantages of credit cards are enormous.
I got the idea for this post while surfing through Quora. A user replied to why he thought having an incredibly high helped him get things in life having a low credit score could not. So, the focus of this article is not only about using credit cards but maintaining a high credit score. And, you will need to use credit cards to establish that score. So first let’s dig into cranking up that credit score, and I’ll tell you story about how paying in all cash actually can hurt you.
Credit Card Tip #1; Cranking up that credit score
Let’s establish some parameters about what is a high score and what is just average. Anything above 750 or so is considered to be high. If you are in the 800’s your score is considered ‘nose bleed’ for height. If you have a score in the 800’s, you probably won’t get turned down for too much. This is the part where the home mortgage comes in. Paying on a home mortgage without ever being late will get your score cranked to monstrous levels. This is the only upside I see with having a mortgage. For all other aspects, I see a mortgage as bad.
So, without a mortgage, how do we get our credit score cranking? Credit cards. Some might say to buy a car and make the monthly payments; I think this is one of the worst ways to establish credit. Other people like to go out and buy expensive furniture on credit or appliances they don’t need to buy. I don’t like purchases like this unless you can buy them without any credit financing charge and you have the money in the bank to pay it off. Many places will offer something like a 0% APR for six months or some incentive to get you to buy.
This can be ok as long as you aren’t buying on an impulse to get the new latest and greatest. Just make sure that thing is paid off before the six months, or you could get penalized with finance charges back to the beginning of the purchase.
That’s their trap. Retailers extend it out just far enough to forget to pay it off in full then slap on all the extra interest at the end of the six months. So, this leaves us with credit cards. I read a story where a guy paid off all his debt and started paying cash for everything. In my book, this is a home run. Within a couple of months, his credit score dropped from above 800 into the mid-500s. What a shame that someone who seems to do everything right gets penalized by our society. This is why I like credit cards to maintain my credit rating.
What type of cards are good? I like credit cards that have high rewards which don’t expire, no annual fees and have an excellent credit fraud protection plan. I stick with various Visa cards. If you are a traveler, travel cards can be pretty lucrative.
There is a YouTube couple named Kara and Nate who used travel rewards on credit cards to help them travel around the world. If you are interested in learning how they did it, go to their blog. Here is a link to their blog https://karaandnate.com/. I’m a travel junkie, so I follow them regularly. The thing about using credit cards is to remember to pay them off every month. Don’t let balances accrue because interest fees will kill you. Think about this as a tool to increase your credit score and get the perks.
The easiest way to do this is to use your credit card for your necessary purchases every month. Is it for everything you would typically pay cash for, then pay it off every month? Treat your credit cards like a debit card that is attached to your bank account. If the cash isn’t there, don’t buy it.
Credit Card Tip #2; Doors will open with a high credit score
I never stopped to consider the benefits of having a high credit score other than to make purchases on credit, but it does go a little past that. Our modern society judges people based on credit scores. Hey, I’m not a fan of it. Just like the other two inevitable things in life, death, and taxes, it is something we have to deal with for living in a consumer-based world.
The big benefit I can see to having a great credit score is housing. If you ever go to rent an apartment or house, most likely they will pull your credit report to see if you were likely to make your payment every month. A low credit score or some red flags on your credit report could crush your dreams of renting that beautiful house on the beach for the summer. Or, just getting something to live in if the credit score is bad enough.
It may even alter the amount of money you will need to come up with to get into a place. Many rentals now require the first and last month’s rent and a security deposit before you move in. In some situations, I’ve seen part of this diminished or even only requiring the first month and security because of an excellent credit score.
Here again too, if you have the money in the bank to pay for it and they take a credit card for first, last, and security, I would use it. The reward points will be outstanding just as long as you pay it off right away. My in-laws operate used car dealerships. I’ve seen them be a little more favorable to people with good credit when negotiating on a car. It is a sad fact in life that you will be judged by your credit rating.
Credit Card Tip #3; Loving all those credit card reward perks
The perks are where it is at. I like perks that don’t expire. I like saving perks to make more significant purchases. Usually, perk plans that expire keep you redeeming every month. I’m too busy to monitor all my perks continually. I’d instead treat them as a bank account just sitting there for when I need them.
The two-for-one perk is the best. I’m getting interested in the travel hacking market where the perks take the form of airline miles. Although this doesn’t only need to be flights, you can use general travel miles for hotels as well. If you are into this, I’d seriously check out the way Nate plans all this out over at https://karaandnate.com/.
Also, another blogger who got me serious about the ‘credit card reward points thing’ is Ramit Sethi at https://www.iwillteachyoutoberich.com/. He is serious about reward points. I love those credit card rewards. I guess the big takeaway from this article is the importance of your credit score even as you move forward into a financially independent lifestyle. Some of us will break away from the nine-to-five more severely than others.
Like the example of the guy above who paid off all his debt and went total cash, his credit score dropped. In our society, this will hurt his stature. It’s unfortunate because I kind of envy someone like that who hasn’t fallen prey to conventional thinking.
I think for now and into the foreseeable future, maintaining a high credit score will be ultra-important, and credit cards look like the best way to get you there.
Be safe,
Kevin