There are some financial experts that believe you should not have any credit cards for any reason. I disagree – as long as you know how to use them responsibly. What I mean by that is use them in your spending plan before the purchase, not after and have a game plan of how you are paying them. I have personally had to cut up all of my credit cards and close every single one of them because I had to file bankruptcy (that’s another story for a later time). I spent almost 4 years having ZERO credit cards in my name and it forced me to understand that if I do not have the cash available in my checking account, that I cannot afford to buy it (whether it was jewelry, gifts, clothes or a vacation). Throughout those 4 years I created a better spending habit so that if I were to have a credit card, I’d know what to do so that I wouldn’t be in the same position.
When I met my husband we knew that someday we would want to buy a house. Well, although it’s not impossible, it is very difficult to buy one without credit and in order to build our credit (especially with a bankruptcy now on there), we needed to start with a secured credit card. These were cards that required you to pay up front a deposit, usually equal to the credit limit. So in our case, we had a $300 credit card limit. Over time, these limits can increase and depending on the creditor, you may even receive the $300 deposit back (be sure to read the fine print for any card you sign up for). This was a start for us. We both didn’t have great credit either – and yes, your FICO score is a debt score to see if you can responsibly manage your debt.
Once we had a few of these cards, we put the other person as an authorized user so that it would help both of our credit scores. And we also made sure to not ever have a balance more than 30% (actually now we use 10%, but 30% is still good especially if you’re just starting to build). Then we made sure each card had a purpose: one was for gas, another food, one for the internet bill - all of which was still budgeted for. We paid these off every month all but $5-10 (some weekly to keep them less than the 30%). Why do we keep that little amount? Because depending on when the credit card company reports to the credit bureaus, whatever you balance is at that time is what gets reported. If you happen to show $0 when it’s reported, then it doesn’t look like you use your credit card(s). And as a traveler, it helps to earn miles or cash back for things you’re going to purchase anyway. In fact, we now have a credit card that’s specifically used for our vacations.
So the answer to my initial question is NO! Credit cards are not evil. You just have to learn how to use them properly and understand your purpose for using them. The moment you make that purchase with the thought in mind of “oh, I’ll be getting paid Friday and will pay it back” you need to stop using that card and rebuild that money habit.