Where would I be without my credit card? It has seen me through some of the toughest financial times of my life, provided security when life was unpredictable, and taught me that responsibility, self-reliance, and self-reward can co-exist.
I got my first credit card shortly after getting my first bank account when I started university six years ago. I was 18 years old and strapped for cash coming into school, having already sold all possessions of value for textbooks, school clothes, and dorm necessities. (Kissing that Xbox 360 goodbye was a real pisser by the way.) Shortly after arriving with my three bags of stuff, I discovered the power of refund week. This special time is when you learn how much money you’ll get back once your tuition and bills have been covered by your scholarships and grants. Upon receiving my first refund — a whopping $900 to spread across three months — my bank notified me that I qualified for a Student Visa card. Despite a mere $300 limit, I was thrilled. Finally, I wouldn’t be at the mercy of checks that may or may not come when my bills were due or if I only had two sad quasi-raisins left in my fridge.
This card truly changed everything. I knew that I could afford what I needed and make it right when I scrounged the payment money together. At first I received hefty warnings that credit cards were full of temptation and sucked you dry, but gradually I proved to myself and everyone around me that I could manage the risks. I have since worked my way through the ranks, never missing a payment or paying less than the minimum payment, to earn perks, higher credit limits, lower interest rates, and most importantly, a bomb-ass credit score.
Here are a few tips for selecting a credit card and maintaining the golden ratio that leads to great credit.
1. Always check to see if your credit card will charge you an annual fee. If it does, swipe left, honey! There are plenty more fish in the sea.
2. Aim for a credit card that gives you cash back or travel miles. You might as well get some kudos for being über responsible and paying those bills. Cash back cards can offer up to 5% cash back on purchases in the categories you select, 2% cash back in gas or groceries, and 1% on everything else. I recommend this option if you haven’t begun traveling for work or recreation yet.
3. Try to find a credit card with fixed APR rate. (This means that the rate the bank charges unpaid balances on your credit card will not be compounded 12% one month and 24% the next.) This type of card is a unicorn, I’ve not actually found it myself, but I know a few people who have had one.
4. Piggy-backing off the last tip, if you can’t find a fixed rate and end up with a variable APR, make sure you are calling the number on the back of your card every 6 months to a year to check out which APR discounts or credit line increases you are eligible for based on your track record. I’ve moved down a whopping 8% in interest rates just by calling in and asking to be locked in at a lower rate for 6 months at a time.
5. It is okay to have more than one credit card. Just don’t go crazy! If your very first card was opened seven years ago for that aforementioned $300 limit, keep it. Building credit is as much about past performance as it is current reliability. Even if you never plan on using the card, keep it open to show you have a long running history with the bank/credit union you started with. Pro tip: if having unused cards lying around gives you anxiety, snip that bitch and leave it in a drawer while the account lives on.
6. Remember that just because you qualify for a huge line of credit doesn’t mean you should take it. Be mindful of the fact that you will need to buy a new car someday, get a mortgage on a condo or house, or maybe take a loan out to start a business. Anytime you ask the bank for a loan for any of the above, they will check your “revolving” credit to see how much money you have access to (i.e. your actual paycheck, savings account, credit lines, and previous loans—looking at you Stafford loans). If your revolving credit is too high and lenders think you can’t reasonably make car/house/business payments because you may go on a random bender during a rogue trip to Ibiza and max your credit lines, you might not qualify at all for whatever it is you want.
Well-known socialist theorist Karl Marx tried to warn us in “On Capitalism,” published in 1867, of the pitfalls of capitalism, arguing that soon people would be living to work rather than working to live. Simply put, capitalism would cause workers (the proletariat) to transition from gradually living beyond the paycheck to paycheck model to repaying immediate debts with prolonged labor.
It comes as no surprise to me that his predictions have come to pass. Me, along with millions of other capitalists, live life on the edge — always paying the bills, but never seeing the cold hard transactions or cash used to quantify our labor. In my case, this means I seldom have cash on hand or more than $20 in my checking account (not counting the sacred, untouchable savings account of course). I do, however, have all my bills, immediate and upcoming for the month, already paid, a zero balance on my credit card by the end of every month, and a high enough cash back rewards balance to cover the start of next month’s charges. This my friends, is both an ingenious and irregular way to build your life.
Because such a lifestyle goes against the grain of most financial advice you’ve been given, let’s take the Rory-Gilmore approach to examine the pros and cons.
Pros:
1. You never have to wonder if you can afford groceries, gas, an impromptu lunch with the girls, or a return plane ticket should one of your vacays head south. In other words, hello security and welcome carpe diem.
2. Your credit score is the key to every adult rite of passage you will face from your 18th birthday onward. Build it, protect it, savor it. You will at least need to be in the “good” (700-749) credit score range to be welcomed through the doors of rentals and car dealerships and will need an “excellent” (750+) credit score to receive lower payments, better APR tax rates, or qualify for a reasonable monthly mortgage payment. Don’t panic when you are first starting out! This can take several years of institutional trust to build.
3. You’ll rarely have to scramble near due dates to cut checks, mail money orders, or count cash to pay bills. Do it online, when you feel like it, or choose autopay. Poof! One less financial stressor to think about. Plus, you may get a discount on some of your recurring expenses by saving everyone time and paper.
Cons:
1. Not all bills can be paid by credit card. You will still be required to pay things l like rent, student loans, and select bills by check or cash. It will rattle your financial worldview, cause you to curse at your excel spreadsheet, and remind you that you do actually have to stop in at the bank once a month. Be prepared and dedicate one of your paychecks to the bills that fall closest to it. Pull out the money right then and there before you proceed to pay off your credit card. (These archaic cash transactions will also help or hinder your magical credit score.)
2. You will have to be more vigilant about fraudulent charges and banking security. With everything riding on one card with a possibly multi-thousand- dollar limit, you will need to monitor those charges like a hawk to make sure they are all accounted for. The more often you put those beautiful card numbers out into the world, the higher your risks of scam.
3. You will inevitably be invited to a club, festival, or fair that only takes cash. You should try to keep one President Jackson on you so as not to be left out.
Overall, the choice on how you run your finances is yours! You must make the decision on how you save, pay your bills, borrow money, and manage your other assets. Just remember: credit makes the capitalist world go ‘round.