Should I accept this credit card offer?
A client recently asked me to help her decide which credit cards offers were worth pursuing. We had an off-hand discussion about it, but her question got me thinking. I thought I would share my credit card philosophy with my readers. With the tightening of credit after the financial collapse of 2008, it seemed like the offers slacked off for a while. Now we are once again being bombarded. Every major department store, the online power houses like Amazon, and the credit card companies themselves are constantly trying to entice us with bonus points and cash back percentages.
As my grandfather used to say, “you have to play, to lose”. He was referring to gambling. The same adage can be applied to credit offers. Think about it. What company truly gives you something for nothing? Credit card companies live by statistics. You can win the game, but only if you don’t get greedy!
Tigress Rule #1. Pay off the full balance every month, on time.
Use their money, get your rewards as a side benefit, but never, ever pay interest or credit card annual fees. You have to be able to pay back what you spend/borrow each month. Cards are not the place to borrow money. The rates are far too high.
Tigress Rule #2. Keep your number of cards to a minimum.
Opening a new account may save you 10% or more on a big purchase. OK. But then what? Now you have increased your debt capacity, (ability to overspend), and reduced your average utilization across all accounts, and reduced the average age of your accounts. Ding. Your goal should be to have the average age of your credit accounts to exceed 8 years. This is hard to do if you keep opening new cards. In addition, the more cards you open, the more you must spend to raise your credit score, which goes up with use. (But remember Rule #1.)
Personally, I only have two actual credit cards, one for personal use and one for business use. I also have a couple of store cards where I shop ANYWAY, because I use them, have had them a very long time, and get discounts. With store cards, you have to be able to resist running to the store every time they send you a coupon. Because they will. Otherwise, I say no to all store card offers. 10 or 15% off one time, is not worth the credit score ding.
Tigress Rule #3. Do have and use a credit card.
Over time, having a credit card that you use regularly and responsibly will raise your credit score, thus reducing interest rates when you have to borrow for a big purchase like a car, or house. Unless you are really horrible about paying on time (avoid this trap with auto-pay), or overspending, then it can help you save money in the long run.
Credit cards are also what I recommend using for online purchases, and for most things you buy that are not ‘regular bills’. Cards (i.e. VISA, MasterCard, Discover) typically come with some buyer protection and with greater security against fraudulent purchases. You are not letting anyone directly into your bank account when you purchase with your credit card vs. a debit card or bank draft. You can even use the card as a way to separate all discretionary spending, and pay for basic needs through your checking account.
I should also add that this advice is geared towards those who are making choices about spending & credit. Sometimes things happen and we have no other option. Which brings us to:
Tigress Rule #4. Never judge another, or yourself, for the past.
What is, is. You can’t change the past; you can only change the future. Poor credit is a problem that can be fixed. If you have made credit mistakes, or have used credit because of dire circumstances, the key is to find ways to make progress. Beating yourself up about it does you no good. Every day that you delay solving a credit problem puts you deeper in debt. If debt is a problem for you, it’s time to put on the brakes and turn the car around.
We are available to help with budgeting and credit choices, and offer a no fee initial meeting. Schedule a personal call today, or request an Information Kit.