Last night, I was uploading the final documentation for my home mortgage, which I'm refinancing from a 30 year to a 15 year. Two pieces of documentation they requested was that I show proof my two credit cards are paid off. It got me thinking about my stance on credit cards. I think there's only one reason you should get a credit card and it's not to build credit.
The only reason that a credit card should ever be obtained is if it gives a true financial advantage for your situation. For example, my wife and I probably do 75% of our shopping through Amazon. We get everything on there. So, I opened an Amazon Store Card (which is their fancy credit card that's only usable at Amazon). But, the advantage of this card is that you get 5% off ever order. If my wife and I spent $5000 in a given year, we would have saved $250.
I think the general rule would be to get a credit card for places you shop at often, again if it's truly financially advantageous. Some good ideas might be your grocery store, a gas station near home or on your way home from work, or a store with a broad range of goods. I would not get a credit card for department stores, as they're too specific and often don't offer a good enough deal. Plus, they tie you down to a single store, where most people like to shop around at many different department stores.
Another rule to go by is that a credit card balance is always paid in full before it's due. You'll never use the credit card for it's actual purpose, which is to lend you money. Credit cards have the highest interest rate out of an type of loan. Under no circumstances, should you ever use your credit card without paying it off in full. I would also say in 99% of cases, emergencies should not be put on a credit card either and that 1% that does put an emergency on a credit card, has it paid in full before it's due.
If it wasn't for the 5% off, I wouldn't have any credit card. I would truly be credit-less. I don't think it would be bad for anyone to just go that route, because even the benefits sometimes aren't worth it. There's probably a lot of day's that the 5% off isn't worth it for my Amazon credit card. You need to analyze your situation and know if it's right for you to have a credit card. If you struggle with debt, cut your credit cards up immediately. Don't wait. They'll do nothing good for you and the benefits aren't worth it.
Often people argue that you need a credit card to build credit, but this just isn't true. If you're paying rent, this could build your credit. If you have a mortgage, this could build your credit. Another note on mortgages, it is possible to get a mortgage without credit, but you typically need about 2 years of consistent W2 work.
If you need help figuring out whether a credit card is right for you, or if you should stop using your credit cards all together, please message me!
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My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
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