Monday, May 18, 2015
By Jed Williams
Fraudulent Myths about Credit Cards

Sometimes credit cards can be scary business. You constantly hear about people opening cards and maxing them out and barely being able to scrape by. They pay the minimum balance and can never get ahead. Payments get larger and larger and the credit card companies make a fortune off of the interest. People then get into debt way over their heads and their credit scores suffer the consequences. And we all know that when your credit scores plummets, you’re almost frozen in whatever financial situation you currently hold.

The horror stories are generally all true, and overspending on a credit card can be very easy. There are books and financial institutions and professions dedicated to helping people out of these crises. To list all of the good credit card practices in one blog would be unrealistic, as there is no one-size-fits-all plan when it comes to credit. Your financial, marital, and familial statuses all play a part in what works best for you to get out of and stay out of debt.

My husband and I have fairly simple rules when it comes to credit cards to keep ourselves in check. We use them more or less like debit cards, never putting more on them than we can pay in full at the end of the month when the bill is due. Sure, we have exceptions: if we need a new couch and a certain store is having a deal where you can “buy” a couch with their store credit card and pay zero interest for 12 months, we might open the card and make the payments, but we make sure to have the couch paid in full by the end of the 12 months. If you treat your credit cards correctly, they can be a huge asset instead of a burden.

Did you know that not having a credit card at all could be a huge detriment to your credit score as well? They’re kind of a necessary evil that can be turned into a financial benefit if you use them right. The longer you have a credit card, the better it is for your credit score. Let’s say you opened a credit card when you turned 18. That means your credit history goes back to when you were 18 years old, assuming you kept the card open. You don’t even have to spend any money on the card for it to help you out. Just having that line of credit open makes your history longer than if you were to close it and the next credit card you opened was at the age of 25. You automatically lose 7 years of credit history just by closing that first card.

Paying your balance in full every month shows that you are responsible with the line of credit that you have. That’s a no-brainer.

Having a large line of credit also helps you. Say you received a $1000 line of credit when you opened your first credit card. You never even come close to spending that $1000 per month, so you keep it right where it is. That seems logical. However, if you were to up your line of credit (which most credit card companies are happy to do if you’re responsible with the line of credit you have), every month you’d be putting a smaller percentage of your line of credit on your card. That’s very attractive to prospective loan institutions. They don’t necessarily look at the dollar amount you spend, but rather at the percentage of what you spend versus what your credit card company says you’re allowed to spend.

Like I said, there are a million rules that you could come up with and a million reasons why any one of them wouldn’t work for your specific situation. I’m a huge proponent of having credit cards and using them, as long as you’re going to use them responsibly. What that looks like for you is likely very different than what it looks like for me. If you do decide that having a credit card is for you, you may want to look at this list put together by nerdwallet.com. They have broken down their top credit cards by benefits they offer. There are cash back offers, which are my favorite: you get money back for spending money. Some offer bigger rewards for gas and groceries, and let’s be honest, that’s probably what the majority of your bill is. If you travel a lot, you may want frequent flier miles, low international fees, or hotel discounts.

Not to beat a dead horse, but credit cards can really work for you and your credit score if you allow them. If your financial plan does not include a credit card, there’s a chance you’re missing out on some pretty great perks. Talk to your financial advisor and decide if and what credit card would work best for you.

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Jed WilliamsJed Williams
Principle Broker and founder of Hagan Realty