The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: anastrophe on February 04, 2013, 01:34:44 PM
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Believe it or not, I'm almost 30 years old and I have never had a credit card. My parents are financially irresponsible and learned their lesson, which they passed on to me as CREDIT CARDS ARE EVIL. And I have about a 50% savings rate on a good month, and rarely need to spend much money, so I've never had trouble affording the things I want. So I never thought I really needed one--presumably I have some credit history as I have student loans and various utility accounts, etc, in my name, although I don't have a car or a house.
But I wonder if it will be difficult to open one if I wait much longer, and maybe I might need one sometime. What say you all? I am sure I could pay it off responsibly, I just can't decide if it's worth having one.
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You are missing out on a ton of goodies. After some time and responsible spending, you can sign up for rewards cards. Some of us here do this for sport and rack up hundreds of dollars annually in various airline miles, cashback, and whatnot. You want a stellar credit score if you ever decide to buy a house, and there is no better way to establish credit than with credit cards.
This may be stating the obvious, but it also allows you to borrow money for free, so you are perpetually one month ahead.
Get one.
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Probably?
Credit cards 1) help establish credit and 2) often have points/cash back
(1) is important only for credit score, etc, so pretty necessary for good rates on a mortgage or other loans.
(2) free money
Your credit score is a number of factors - debt to credit ratio, length of accounts, etc. I'd familiarize yourself more with what goes into a credit score if you think you might need/want a mortgage in the future. (for example, I don't think your credit score is affected by paying off utilities - someone correct me if I'm wrong)
http://www.ehow.com/info_7749762_goes-credit-score.html
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Cashback. Read the first two posts here: https://forum.mrmoneymustache.com/share-your-badassity/rewards-credit-card-perfecta/
Also, credit. You will need good credit if you ever want to buy a house or finance anything at a sane interest rate. Have good credit before you need it, and it makes everything easier. Your credit score is a big silly game, but unfortunately it's a game most of us have to play. Just being financially responsible isn't enough.
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Yes, I agree with the other comments. You're missing out on some great goodies/cash back! Using a credit card responsible (paying it in full each month0 results in a few hundred bucks a year in rewards!
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Yes, I agree with the other comments. You're missing out on some great goodies/cash back! Using a credit card responsible (paying it in full each month0 results in a few hundred bucks a year in rewards!
I seriously doubt that it would be that much--I spend so little money--I mean I have one of those rewards checking accounts through my credit union that pays 2% and I think I made about $90 last year.
But we will see, won't we;)
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Some credit cards give you points for BOTH spending AND number of transactions. For example, I get 1% back on all spending in addition to the $0.10/transaction.
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You definitely should. Assuming you're a responsible mustachian, you spend only what you would have spent without a card and can pay off the balance in full so no interest accrues, credit cards are free money.
Take a look some of the rewards card posts on here. I easily get at least a thousand a year in cash back rewards and probably average ~2.5% or so on everything.
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Another nice thing about credit cards, if you have the discipline to pay the balance before incurring any interest, is that they make on-line shopping so much easier.
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As long as you're responsible enough to not pay interest you'll get some rewards and build credit. Go for it!
Also, once your credit is established be on the lookout for signup bonuses.
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Not getting a credit card cost me $1500. I was in your same position after finishing college. Credit cards are bad.
In 2002, I was shopping for a house. I found one that fit that was to be auctioned 10 days later. I applied to be approved for a loan. I had 20% cash in the bank for downpayment on the house. I had zero debt.
I couldn't get a house loan. I had no credit score.
My Realtor told me not to buy the house, because I could lose the 20% I put down on auction night if I didn't close in 30 days. I did buy it anyway. It was 30% undervalued.
I got a loan through a local bank. It was a 3 year balloon. This means I had to refinance or sell the house before 3 years.
Buying the house was one of the smartest thing I ever did.
Paying an extra appraisal, closing costs....for $1500 was about the worst money I spent.
Could you possibly want to borrow money in the future for a house or business? If yes, get a credit card and use it wisely.
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If you can be responsible with the credit card - yes.
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So, in case anyone was wondering: I was rejected for my first credit card for not having enough credit history--"Lack of recent revolving account information". Which isn't great, but the good news is that I got my credit score for free in the rejection letter (thank you, Bureau of Consumer Financial Protection) and it's pretty decent so I should be able to fix this with not much work and try again sometime later.
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So, in case anyone was wondering: I was rejected for my first credit card for not having enough credit history--"Lack of recent revolving account information".
Humm... Isn't that a Catch-22? Can't get a credit card because you don't already have a credit card...
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Credit scores are just as much about how much money you will make for the loan giver as it is to your risk level. My credit score is fantastic. But they dock me points for not having enough different credit accounts in my history. They literally want me to open accounts I don't want and don't need. So you trying to get an account after years of managing your finances successfully without loans look bad to them not as a risk, but as a source of making money.
If you don't have luck with the methods you are trying now try a credit union (especially if you have savings and/or checking with them). They usually are better at just looking at the risk side and less on the profit side.
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Seconded. Go get a credit card from your neighborhood credit union -- but know that you may have to have it be secured by a cash deposit for the first year.
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Seconded. Go get a credit card from your neighborhood credit union -- but know that you may have to have it be secured by a cash deposit for the first year.
This is an easy one. I already bank at my neighborhood credit union and have actually had a bank loan through them (that I didn't ask to have reported to the credit agencies but now will) so I am virtually certain they will give me a card, since they have my checking account as collateral;)
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presumably I have some credit history as I have student loans and various utility accounts, etc, in my name, although I don't have a car or a house.
One of the primary factors in your credit score is how long your oldest account has been open (or the average age of open accounts, which is most affected by the oldest one).
Ideally, everyone should get one credit card at 18, and then use it once every six months just to keep the account from closing. The sooner you do it, the better. This will have a big impact on your rate should you ever want to get a home loan.
Credit scores are just as much about how much money you will make for the loan giver as it is to your risk level.
Credit card companies (and the scoring companies) don't make more income due to you having more accounts, and the number of accounts metric considers closed accounts, not just currently open ones. If they were trying to determine how much money you make them, late payments wouldn't count against you, and they would factor in whether you pay in full every month or carry a balance. There is a lot to be cynical about in the world of capitalism, but credit scores reflect those factors which tend to be correlated with risk of default.
They are looking at averages for the entire population, so if your habits and behaviors don't fit the standard American consumer model, your score may not reflect your true risk, but that doesn't mean its a scam, just that you are an anomaly
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Never having a credit card was my life long goal. I grew up thinking they were the devil as well. Life was good until I graduated from college and realized that without credit I didn’t exist (I didn’t have any student loans or any other forms of credit established). It was hard for me to apply for anything money related (opening up an online savings account, turning on the electronic to my new apartment, etc.). Then I had a problem when I traveled. Who wants to put a huge authorization on your debit card for a hotel room when it ties up your money for the whole vacation? I finally gave in and tried to apply for a CC but no one would approve me because of my lack of credit. I finally was approved for a Capital One Card with only a $500 starting balance (Capital One – not my first choice). I used this card for groceries and gas only and paid off the balance every month. Now I have a Discover Card (much more preferable) and with a high balancer (although I don't rack up any charges) which gives me pretty good rewards and much better security and customer service. I have never paid any interest because I pay off the balance every month. I really only use it for the reward of a higher credit score which will come in very handy when I’m looking to buy a house. Sad to say, but thanks to credit I know exist.
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They are looking at averages for the entire population, so if your habits and behaviors don't fit the standard American consumer model, your score may not reflect your true risk, but that doesn't mean its a scam, just that you are an anomaly
I realize it isn't a scam. It is just seems weighted so badly that if you have 1 or 2 fewer lines of credit in your history than your ideal you get a D instead of an A. From a modelling perspective it seems kind of broken to me.
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That's not how it works at all. I've got one type of credit line and a score in the 700s. If you've got an awful credit score, variety of accounts is not the only culprit.
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You can get a free account from Credit Karma - they will not only tell you your credit score, but also tell you what each component of the score is and where you stand on that category
For example (mine):
Open line utilization: 3% (A)
Percent on time payments: 100% (A)
Average age of open accounts: 8yrs 4 months (A)
Total accounts (past & present): 19 (B)
Hard inquires: 1 (B)
Derogatory marks: 0 (A)
774 Transunion / 844 Vantage
August that inquiry drops off, should get back to a 800+ TU score like I had before doing the $500 bonus credit card deal I learned about from MMMs blog
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One of my major reasons for living a Mustachian lifestyle is to give credit cards the finger (by not having any).
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One of my major reasons for living a Mustachian lifestyle is to give credit cards the finger (by not having any).
I get a lot of pleasure from the hundreds of dollars Chase has paid me to use their card