On Credit Cards

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Photo by Code Mnml via Unsplash.com

So, I’ve never talked about credit cards on my blog. I didn’t even realize this until my friend wrote in for a Q & A, asking “Do you have a credit card, and if so, how do you use it?” I thought it warranted an entire post.

In my senior year of college, I got the first credit card I qualified for after hearing that I should be using one to build up my credit score. I didn’t really love the idea of it, because it felt super strange to use someone else’s money instead of my own. I wanted to build up my score, but truly didn’t understand why everyone treated them like they were so necessary.

I dug into the topic of credit cards more online, and found horror stories of people who had gone into mounds of consumer debt, unable to resist the temptation of maxing out their credit lines, regardless of whether or not they had the money in their bank. There were stories of people who ran into emergencies and, without an emergency fund, racked up the same debt. And of course, when I started exploring Dave Ramsey, I heard repeatedly that no one should have credit cards at all. 

He has a point. For lots of people, credit cards create massive amounts of debt in the name of achieving a high score; a completely unworthy trade off. People are bad at resisting the temptation to spend money they don’t really have– this is normal. Beyond the online horror stories, I personally know far too many people for which this is true. While, in theory, using credit cards can help you out financially, that isn’t how it looks for most people in reality. Personally, I appreciate Dave’s message to his audience, which is the average broke American. And it’s a deep relief to know that, despite what everyone in my life told me, you don’t need a credit score to purchase a home or do anything else (see: manual underwriting)

That being said, I have never gone into consumer debt, and I never will. I use my card 2-3 times a month and pay it off every single month. I can use it as a tool to augment my finances without ever feeling tempted to spend money I don’t have. 

I’ve never shared my credit score on my blog, because honestly, it isn’t actually that important to me. I don’t borrow money for anything, and would probably only want a high score if I were to buy a property– and I don’t plan on doing so anytime within the next five years, if ever. People are quick to treat their credit score as a measure of how good they are with money, but this is often an easy distraction from the reality of your financial situation. As a quick example, you can have an excellent credit score and a negative net worth. Personally, I have friends and family who have higher credit scores than me and are in massive amounts of debt. When I paid off all my student loans, I was in the best financial position of my life. Yet, because I had closed so many accounts, my score actually tanked. This is where we need to be careful about what we emphasize when we talk about money.

Now, a credit score can be a helpful tool, when implemented correctly. I’m currently using my own card to build up my score in order to soon apply for the best card I can find with airline miles or cash back, which will save me money without ever putting me in debt. If you’re familiar with the FIRE (Financial Independence Retire Early) community, you might know the phrase “credit card churning,” which describes an intricate system of having multiple cards and extracting every possible monetary benefit from them. It’s a bit too complicated and coupon-cutterish for the simple life I’m trying to live, but it’s another way to use all the benefits of credit cards without falling victim to the extreme downsides.

Because there is such an array of outcomes a person can experience with credit cards, I will never give blanket advice to “cut them up” or always have one. Some people really should not have credit cards, and some people should use them for the benefits. It’s a situation where you absolutely must know yourself well to make the right decision. All the while, you have to remember that your credit score is nothing more than a tool to enhance your finances, not the ultimate measure of wealth, by any stretch of the imagination.

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