Build Your Credit

Back during freshman year of college, my sorority held a mandatory session on financial health instead of our usual Monday night sacrifice meeting.

scream queens

So nice to see accurate portrayals of women in media.

While of course I was disappointed to miss out on the ritual chants and blood-letting that is customary for all sororities, 17-year-old me learned one thing walking out of that meeting: Get a credit card, use it once a month, pay it off immediately.

And thus, my credit history was born.

Fast forward 8 years, and I now have five credit cards. I also have no credit card debt, so why on earth would I want so many? It’s definitely not to make my wallet even less likely to fit in the comically small pockets all women’s jeans offer – if they have pockets at all.

pockets

Designers must think women don’t carry things.

Actually, there are three reasons:

  1. I like getting free money back with my purchases
  2. I want to eventually buy a house [Update: I did it!]
  3. I like the extra layer of protection

Free Money, You Say?

Yep. I’m guilty of abusing the points and bonuses that credit card companies use to entice consumers, ultimately luring them to their deaths debts. The trick is making sure you’re still budgeting, and able to pay the balance in full each month.

I maximize my cash back, using different cards for different purchases. Every so often, I’ll check NerdWallet for the best cards for my spending habits. Recently in my arsenal has been:

  • Capital One Quicksilver*, for it’s 1.5% cash back on everything
  • Sallie Mae Barclaycard**, for its 5% back on groceries, gas, and books (including Amazon)
  • Old Wells Fargo card that I opened in college to build credit, but never use anymore because their rewards are abysmal

* Retired, now that I have the Double Cash
** Retired, replaced by Chase Amazon, because Sallie Mae reduced their rewards program (boo, hiss)

That said, I’ll only keep the useful cards on me. The rest hang out in a drawer, probably in pieces (sorry, Wells Fargo and Sallie Mae, but you did it to yourself).

felicia

Also worth saying – even though I’m making it a point to travel more, I’m not using credit cards that offer miles. Those are great in theory, but I have yet to see a card that offered bang for your buck, in comparison to just buying the plane ticket with your cash back. Let me know if I’m missing something!

Credit Scores

Obviously you don’t need a credit card to build a credit score, but it’s the easiest way to do it. Because I like the idea of paying less money to use money (read: lower interest rates), I want a high credit score. I regularly get updates from free credit trackers, courtesy of Mint and Capital One, but it really just comes down to 5 things:

  • Always pay on time. Just getting this one out of the way. I set automatic payments for each card, and the full balance is eradicated without me having to think about it. Because who wants to pay for the money they just spent somewhere else?
  • Keep old accounts open. This is why I didn’t just cancel my Wells Fargo card. The older your average credit account, the higher your score. If a card has no annual fee nor penalties for not using it, I’ll just keep the account open and linked to my Mint account. That way I’ll know if it’s ever used by someone that, say, isn’t me.

    sneak

    I’m on to you, cat.

  • Have high credit. I always make sure I get a high limit for each card, even though I never spend more than, say, $1,000 on credit cards in any given month. The higher your total credit limit, the higher your score. If I’m not trying to buy a property, I’ll reach out to one of my credit card companies and ask for a higher credit limit, maybe once a year. For best results, I’ll usually do it just after my income bumps up.
  • Use less credit than you have. This one goes hand-in-hand with the point above. It comes down to the percentage used. The less you spend compared to your limit, the better your score.
  • Don’t do too much at once. Each credit inquiry in a two-year period makes a difference on your credit score, so I’ll limit them. Pre-approvals for buying a home, applications to new credit cards, credit checks for renting, and even hard pulls for requesting a higher credit limit all matter – and count against your credit score. No matter what, building your credit score is going to take time.

One more thing: it’s a common myth that carrying a balance month over month improves your credit. My theory is that this rumor was intentionally started by the credit card companies to trick you into paying interest you otherwise wouldn’t pay, all in the pursuit of good credit.

tin hat

Regardless of who started the rumor, it’s been debunked. That said, you do want to show that you’ve been using your credit cards, so I set my auto-payments to just after my statement comes out, and pay in full every time.

Extra Protection and Perks

There are so many scams and skimmers out there, whether at the gas station or ATM. On top of that, sometimes companies seem like they’re actively trying to steal from you (I’m looking at you, Consolidated Smart Systems). Debit cards and linked bank accounts take the money directly out of your account, no questions asked. With credit cards, however, you can dispute a fraudulent charge and get a new credit card number just by going online.

As for perks (aside from points/miles), they really vary depending on the card. Most recently my Chase card got me early access to Eric Clapton tickets!

yas

MRW

My other perks include extended warranties on purchases, free rental car insurance, travel insurance, and price protection (so if something goes on sale right after I buy, they’ll match the current price). Not too shabby for something I never pay extra for.

***

Sure, it’s possible to slip into debt with credit cards. In moderation, however, credit cards are so much better for your financial health. They’re safer, can save/give you money, and can lead to cheaper mortgages thanks to lower lending rates when used right.

So do I need 5 credit cards? No.

Do I even use 5 credit cards? Definitely not.

Am I going to have 6 by this time next year? Probably Definitely.

Leave a Reply