“Peek Inside My Financial Life” where I share my personal strategies, products, services, etc. plus how I stack up on taking my own advice. Before diving into a Credit card, check out How to Make Financial Changes
Credit cards are a hot topic for, well, everyone ever.
Some people love them so much they have 25+ on rotation for airline miles, rewards points, cash back, and other perks.
Some people hate them so much that they refuse to get one–even to build their credit score.
Me, I fall somewhere in the middle, but more on that in a second.
What I Recommend to Others on Credit Cards
I’m not dogmatic one way or another about credit card use UNLESS you’re carrying credit card debt.
If you’re carrying credit card debt, physically freeze your credit cards in ice to avoid spending on them. This way, if you genuinely need to put something on credit, for an emergency, etc. you can get to your card. However, you’ll have a physical barrier between you and the card if you are trying to buy something impulsively. Another physical barrier I like is to put a sticky note on the swipe strip of your credit card that reminds you not to spend extra.
Then, of course, focus on paying down as much debt as you can while your card isn’t in use.
If you’re not carrying debt, but using your cards in routine monthly spending, I encourage you to track your spending weekly. I’ve seen my fair share of smart, savvy, well-intentioned clients who accidentally find themselves in debt after pursuing rewards points. Rewards cards are a great servant, but a bad master. Don’t let the credit card company master you, and stay ahead of them by diligently tracking your spending and balances.
The best defence is to set up auto-pay for the full balance of your credit card every month, and know the balance on your card at all times.
That said, you have to make sure you’re not underspending on credit cards either. If you have an old card that never gets used, it may be cancelled for you by the credit card company.
That could look really bad for your credit score depending on how long you had the card, the credit limit, etc. For these cases, you may want to set up a small recurring charge to keep a long history of on-time payments to keep your credit score in check.
My Credit Cards
I have 2 active credit cards right now.
I’ll start with the latter.
My Wells Fargo card has a $5,000 limit on it, and I’ve had this bad boy since I was a teenager (I think it started with a $1,100 balance back then!). I don’t carry this card in my wallet anymore, but I keep it active it because it has the highest balance among my credit cards, and it carries the longest credit history.
To keep it a part of my credit score, I charge my Netflix subscription here ($12.99 to $13.99 per month), and have the card on autopay.
My Chase Freedom card has a $2,000 limit, a 14.99 %–23.74 interest rate, and the Freedom rewards program. I’ve had this card for about 4 years now, and this card was the one that got me in trouble! For a while, I charged darn near everything to get cashback rewards. However, since the credit limit is so low, my monthly spending could get me to nearly max out the card each month.
That was a credit score killer for me, and bit me in the butt when I went to buy my first home!
Now, I keep this credit card in my wallet for things that really need a credit card–like buying things on the internet (for fraud protection).
I’ve thought about calling Chase to increase my credit limit now that my score is much better, but sort of got tired chasing a better credit score.
Inactive or Cancelled cards
In the past, I’ve had cards with Express, NTB, and Rooms-to-Go.
I got these cards when there was a 0% interest offer for a period of time, and when I felt I really needed something. And i got my first interview suit from Express (I still have the jacket!), I had 2 flat tires and got all 4 replaced at NTB, and I got our first furniture at Rooms to Go.
I should have purchased these items in cash, but, frankly, I didn’t plan for them to happen, I didn’t have the foresight to spread out the purchases over time, and I procrastinated until I needed the purchases right this second. I guess the good news is that I learned from these experiences!
The Rooms to Go card carried a balance during that same period I was buying my first home and discovered I had a bad credit score. Despite the 0% interest, I paid it off from emergency savings just to be done with it.
I let these cards lapse through non-use, and promised myself not to open store cards ever again.
Strengths and Weaknesses
I’m proud to pay off both of my credit cards in full each month, and to not carry a balance.
I prefer cash or debit these days for the ease of budgeting, and the fact that it feels like a “clean” transaction. I don’t have to charge something, watch my bank accounts like a hawk, and transfer cash in and out to be “prepared” for when the credit card comes due.
As for my weaknesses, there are a few. The Wells Fargo student card needs to go. I’m pushing 30 now, that’s sort of unacceptable! Second, it’s time to ask for a higher limit on my Chase Freedom card to improve my credit score.
I should choose a replacement credit card for the student credit card–preferably one with rewards and a favorable interest rate. Why a replacement card, if I’m in favor of cash? Well, that’s another credit score discussion.
If I let $4,000 of my $5,500 total credit limit lapse ($4,000 WF, $1,500 Chase), that looks bad to the credit bureaus. It also means that I can quickly over-utilize credit (aka, a $500 plane ticket purchase would put me at 30% credit utilization–which could take my credit from “Excellent” to “Good” or even “Fair”).
For those reasons, I need to replace the card at just about the same credit limit.
So that’s it!
I have two credit cards, and I use them mainly to keep my credit score up. I focus on my credit score in hopes that I’ll qualify for the best interest rate for a mortgage in the future. The difference between a 5% and 4% interest rate on a house can mean tens of thousands of dollars on interest over the long term. And how many shopping /vacations is that?