I can’t tell you how many times I’ve heard my millennial friends and co-workers comment on my credit cards.
“Why do you have so many cards? Credit cards force you into debt!”
“I’ve never had a credit card and I don’t want one. I’d rather just live within my means.”
“…but my parents told me credit cards ruined their lives.”
For all you credit card haters out there, let me rock your world for just a moment. Without credit cards, you’ll probably never own a house. Do you really want to still be renting an apartment at 40?
But even more than that, when used correctly credit cards are a tool that can also save you money and are great in the event of large emergency expenses.
1. Buying a Home
No, you’re not using a credit card to buy your house. However, credit cards make up a pretty large portion of your credit history – the thing that tells banks whether or not to give you a mortgage. You can live within your means all you want, but having no credit history = no mortgage.
Thankfully, I grew up with parents who understood this concept (careers in finance and accounting will do that!) and passed it on to their children. I had a bank account at 16 (with my mother as co-owner) and my first credit card at 18 (again linked to my mother’s account for monitoring purposes). Around 20, I split that card off from my mother’s account and acquired a couple more.
Opening credit cards at such a young age certainly can be (and was) a risk, as you need to be extremely careful not to overspend. But it also meant I started building my credit history at a much younger age than most.
Managing multiple lines of credit combined with months and years of on-time payments built up my credibility with lenders. This credibility meant I was able to get an extremely low interest rate (1.9%) on my car loan at 24 years old (without a co-signer!). The saleswoman was shocked. Apparently I had one of the best credit scores she’d seen in months and was the youngest person she’d ever sold to without a co-signer.
This credibility came back into play less than a year later, when I bought my own house at just 25. Again, my well-maintained credit history gave me access to a state-managed first time home buyer’s program that allowed me to purchase my house at a discounted price and with another low interest rate (4.1%).
Don’t make a mistake by waiting to start building up your credit history, even just opening 1 card and paying off the balance each month can make a huge difference down the road when you decide to make the biggest purchase of your life.
2. Saving Money
This wouldn’t be a Smart Living post if (at least!) one of the items didn’t seem to fit at all. The idea that using credit cards, essentially “borrowing” money for a few weeks, can save you money doesn’t seem right at all. Am I right?
But it does!
I earn $25-50 every month from just using my credit cards to buy the things I’d be buying anyways. The key here is to only use your credit cards for your actual, everyday expenses like groceries and gas. Essentially, just pretend they’re the same as your debit card. After all, the money will still need to come out of your bank account, just a few weeks later than usual.
The majority of credit cards these days are “rewards” cards, which means they give you some sort of incentive to use them. Some give you points that can be redeemed for products or air miles to use on flights, but many programs are much simpler. In exchange for using your card, you’ll get a percentage of the purchase price back.
Personally, I only utilize cash back cards as I find products are usually cheaper on Amazon and flights can be bought at discount prices with some advance planning.
Starting to use any cash back card will automatically start earning you money, but to maximize your earnings you really do need to know the details of your card’s cash back program.
I have 3 main credit cards and 3 store cards, along with 1 emergency use only card. Each card, like my bank accounts, has its own purpose. The only category where I am not maxing out my rewards is on my Citi Card, but I still use it as a way to keep my work-related expenses separated from my personal spending.
My Credit Cards
- Bank of America – gas & groceries, 3% back on gas/2% on groceries/1% on everything else
- Capital One – travel & entertainment, 1.5% on all purchases (and no foreign transaction fees)
- Citi Card – business-related, 1% back on all purchases
- Lowe’s Card – home improvement, 5% discount at Lowe’s (or 0% financing on large purchases)
- Macy’s Card – business attire, access to special sales and discounts
- Jordan’s Card – furniture, special access to 0% financing on large purchases
- USAA Card – no rewards program (but has an extremely low interest rate), to be used for emergencies only
Again, the key to this point is use each card for the spending category where it offers the highest rewards and to treat your credit cards more like debit cards to curb any unnecessary spending.