“John is really into personal finance,” my friend told me as the three of us sat eating lunch around the blue metal table. “He has eleven credit cards.”

I was confused for a second, having eleven credit cards didn’t sound like someone who is good with money. He clarified that he got them for the rewards, and didn’t put money on most of them. It was the first I heard of credit card churning. “Besides,” he said, “it helps my credit score.”

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Up until that point, I had the mistaken view that credit cards were unequivocally bad. I had heard the horror stories of companies preying on new university students who would buy televisions, sound systems, and a plethora of other stuff they couldn’t afford, wracking up a load of debt with a 24% interest rate.

When I was a kid, my mom told me that my grandparents bought the house they lived in straight up. I always figured that I would be doing the same, naive to the reality: the cost of a house is a bit different today than fifty years ago.

To avoid the credit card dilemma, I used a debit card. I figured if it was lost or stolen only the amount in the account would be used so I kept it to $300-$500 at all times. It wasn’t until later that I learned that debit cards are actually less safe against theft. I was sorely mistaken about credit cards and the comparative benefits and perceived evils.

It wasn’t until meeting John that I started to get more curious about credit, and was denied my first couple of credit card applications because I didn’t have a credit history.  I had secretly been doubtful when John mentioned that having more credit cards increased your credit score, but I found that it was true. Here are the main things I learned since.

Your credit score will affect your loan rates

Yes, it’s better to buy things with money you have, the reality is that you will probably need a loan for a car, house, or to start a new business. A better credit score means better rates, so you will pay less in the long run. Insurance rates are also often based on your score.

Credit cards have cashback rewards

Okay, I knew this already, but rewards and benefits never tempted me because I figured that they encourage you to spend more, which overturns the rewards you might get. However, if you can be credit card savvy, the rewards aren’t to be ignored. The important thing is only apply for a card that has a certain spending quota if you can easily make the quota without paying extra. For example, Mr. FM’s tuition allows you to pay via credit card with no extra fee. I signed up for the Chase Sapphire Preferred and immediately put his tuition balance on the card. That was a $500 reward without spending any more than we had budgeted for.

Credit cards have security

I was actually worse off with my debit card. It can often be harder to recover funds stolen via a debit card, whereas credit cards have theft protection, and often other benefits like car rental insurance. Getting your money back after fraudulent charges tends to be a painless promise since this is one of the main benefits of a credit card.

Learn the quirks of credit 

There are five main components that are taken into consideration with your credit score:

  • Payment history
  • Amount of debt
  • Credit history/length
  • Mix of credit accounts
  • New credit inquiries

It is extremely important to make sure every credit bill is paid on time. every missed payment will ding your score. Don’t wait, automate those payments! Only pay for what you can afford. If you need a loan, try to get one with a lower interest rate, as credit cards have one of the highest rates around, and your rates will only get higher if your credit score goes down, a vicious cycle.

It took me a while to get my first card because of my short credit history. My first card ended up being a Discover credit card. There are several options for those with low or no credit score, you might even get a secured credit card at first and slowly build up your credit until you can get those benefits.

Some people will put their child as an authorized user on their credit card. If they are responsible and pay their bills on time, it ultimately boosts their child’s credit score. However, it can work the other way too so there is high caution advised for methods like these.

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Certainly it is wise to be wary of credit cards if they tempt one to spend more than usual. Some people find that they spend more when they use a credit card. They find they have more self control when they have to hand over cold, hard cash. Don’t buy things you don’t have the money to cover, which is part of the first step of financial security: building an emergency fund so you never have to rely on credit cards to keep afloat. The truth is, for many people it might be best to keep away from credit cards, after all there is a reason those companies can afford to shell out so much for cashback and other rewards– they are making money in other ways. Missed payments and penalties more than make up for it, so don’t be in this boat!

As for me? I’m on my fourth card, and I think it would take more dedication to get up to eleven. Who knows if I’ll ever catch up to John, especially because multiple credit inquiries can hurt your chances, so you have to space them out.  I like watching my credit score creep higher as my credit history lengthens, and I recently applied for a fifth card. So I say, credit cards are good if used responsibly, however they can quickly fall to lucifer levels if abused.

2 thoughts on “Credit Cards: Good or EVIL?

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