How do I credit?
September 11, 2015 5:52 PM Subscribe
I'll be paying off my student loans in the next year or so. When that's over, I'll be completely debt-free. I don't really want a credit card, and I'm not planning any big, credit-required purchases for the foreseeable future. I don't want to rule anything out though, and am interested in maintaining my hard-earned good credit score. So what should I do now?
I got a credit card 15 years ago in college, and it didn't go exactly as planned (irresponsible youth), so I shredded it, paid it off eventually, and vowed to never get another credit card. Well here I am now and I'm not exactly rolling in dough, but I'm to the point where I feel I can responsibly consider how best to keep my good credit score going. Don't need a new car, and I'm happy renting my apartment, and in general a big credit-leveraged purchase is not something I want to do.
Fiscally responsible adulthood has been a long time coming for me, so doing something like opening a credit card to pay bills is about all I can think of in terms of continuing my credit at this point. What else is there?
Related questions suggested this to me, and there are some good answers there, but any updated advice would be appreciated.
I got a credit card 15 years ago in college, and it didn't go exactly as planned (irresponsible youth), so I shredded it, paid it off eventually, and vowed to never get another credit card. Well here I am now and I'm not exactly rolling in dough, but I'm to the point where I feel I can responsibly consider how best to keep my good credit score going. Don't need a new car, and I'm happy renting my apartment, and in general a big credit-leveraged purchase is not something I want to do.
Fiscally responsible adulthood has been a long time coming for me, so doing something like opening a credit card to pay bills is about all I can think of in terms of continuing my credit at this point. What else is there?
Related questions suggested this to me, and there are some good answers there, but any updated advice would be appreciated.
Maybe consider a cash-back or points/miles-type credit card? If you can pay it back every month, and not run a balance, it can work in your favor.
posted by Lycaste at 7:07 PM on September 11, 2015 [2 favorites]
posted by Lycaste at 7:07 PM on September 11, 2015 [2 favorites]
I would do a cash-back or other rewards card (I buy a ton of stuff through Amazon, so I have the Amazon card and it's great). If you've been living life without a credit card for years now, you basically know the drill, which is never spend more than you can pay off that month. Pay your bill off in full each month, and you'll improve your credit score + get rewards, all for free! Just be disciplined about it.
posted by rainbowbrite at 7:54 PM on September 11, 2015 [3 favorites]
posted by rainbowbrite at 7:54 PM on September 11, 2015 [3 favorites]
A Terrible Llama is on the right track. Take all of your regulator monthly bills like power, cell phone, netflix, etc. and pay them with the card. Pay off the credit card as soon as you use it to pay a monthly bill.
posted by nathan_teske at 7:55 PM on September 11, 2015
posted by nathan_teske at 7:55 PM on September 11, 2015
Pay off the credit card as soon as you use it to pay a monthly bill.
I've heard this sentence is not quite right. If you want to build a good credit score, you should wait until you receive the credit card statement (bill) in the mail, or whenever they say it's ready to pay online. The reason is: if you immediately pay the credit card back at the time of every purchase, the monthly bill will say you have a balance of $0.00. Since that information is sent to the credit agencies who compute your credit score, it'll look to them like you never use your credit card.
posted by Harvey Kilobit at 11:27 PM on September 11, 2015 [4 favorites]
I've heard this sentence is not quite right. If you want to build a good credit score, you should wait until you receive the credit card statement (bill) in the mail, or whenever they say it's ready to pay online. The reason is: if you immediately pay the credit card back at the time of every purchase, the monthly bill will say you have a balance of $0.00. Since that information is sent to the credit agencies who compute your credit score, it'll look to them like you never use your credit card.
posted by Harvey Kilobit at 11:27 PM on September 11, 2015 [4 favorites]
Another note about using credit cards safely: don't be tempted to use them as "float". By that I mean that at any moment you should have the money in your bank account to to pay off the credit card balance in full without it causing any pain. Using YNAB makes this easy, especially if you follow rule four. Without something to help keep you on track, it's all too easy to go off the rails without noticing.
posted by Emanuel at 11:36 PM on September 11, 2015
posted by Emanuel at 11:36 PM on September 11, 2015
You don't need to make a big purchase and carry debt to make credit cards work for you (in fact, that's when they work against you).
What you want to do is get one or two cards* and just use them for your regular monthly life purchases instead of cash/check. Pay them off in full before they're due each month and you're golden.
Although your monthly costs might not seem like a lot, you're probably looking at $1-2,000 each month for groceries, restaurants, bills, clothes, etc.; so maybe $20,000 a year that you're borrowing and then paying down before you're charged interest. Doing this responsibly for several years will build your credit.
As long as you have a card with no annual fee**, you get to build credit and get whatever card benefits there are for free. I've had cards for 12 years and, despite some questionable career moves, have never paid a dime in interest on them, all the while reaping rewards (mostly in the form of cash back).
Using cards like this gives you four benefits:
- building credit
- getting rewards (cash back, miles, whatever)
- the convenience of not carrying much cash
- collecting a trivial amount interest on money you've already technically spent (i.e., if I buy something with my card at the beginning of my billing period, the money I would have spent on the item is still sitting in my bank account collecting interest for me for the rest of my billing cycle + the weeks of grace period before my payment is due. That means I can still collect a month's worth (or maybe even 2, depending on the billing cycle) of interest on the money in the bank that's ultimately owed to the creditor before I pay down the debt on time [and thus avoid being charged interest by the credit card company].)
Here's a card that I got a little while ago. It puts 2% of my purchases into a retirement account that invests in the market. If you pay the balance off on time each month, that's just free money into an IRA for retirement! You'd be crazy not to get one!
* I say 'or two' because often it's nice to have a less-widely-accepted card that often offers better rewards, like the aforementioned AMEX or a Discover, plus one that is guaranteed to be accepted wherever credit cards are taken (i.e., a Visa or MasterCard).
**which should be a personal requirement for opening a card, with the possible exception being if you're into specialty rewards that you plan to hack like one of those airline mile hoarders and you expect these benefits to outweigh cost of the fee.
posted by charlemangy at 9:45 AM on September 12, 2015 [2 favorites]
What you want to do is get one or two cards* and just use them for your regular monthly life purchases instead of cash/check. Pay them off in full before they're due each month and you're golden.
Although your monthly costs might not seem like a lot, you're probably looking at $1-2,000 each month for groceries, restaurants, bills, clothes, etc.; so maybe $20,000 a year that you're borrowing and then paying down before you're charged interest. Doing this responsibly for several years will build your credit.
As long as you have a card with no annual fee**, you get to build credit and get whatever card benefits there are for free. I've had cards for 12 years and, despite some questionable career moves, have never paid a dime in interest on them, all the while reaping rewards (mostly in the form of cash back).
Using cards like this gives you four benefits:
- building credit
- getting rewards (cash back, miles, whatever)
- the convenience of not carrying much cash
- collecting a trivial amount interest on money you've already technically spent (i.e., if I buy something with my card at the beginning of my billing period, the money I would have spent on the item is still sitting in my bank account collecting interest for me for the rest of my billing cycle + the weeks of grace period before my payment is due. That means I can still collect a month's worth (or maybe even 2, depending on the billing cycle) of interest on the money in the bank that's ultimately owed to the creditor before I pay down the debt on time [and thus avoid being charged interest by the credit card company].)
Here's a card that I got a little while ago. It puts 2% of my purchases into a retirement account that invests in the market. If you pay the balance off on time each month, that's just free money into an IRA for retirement! You'd be crazy not to get one!
* I say 'or two' because often it's nice to have a less-widely-accepted card that often offers better rewards, like the aforementioned AMEX or a Discover, plus one that is guaranteed to be accepted wherever credit cards are taken (i.e., a Visa or MasterCard).
**which should be a personal requirement for opening a card, with the possible exception being if you're into specialty rewards that you plan to hack like one of those airline mile hoarders and you expect these benefits to outweigh cost of the fee.
posted by charlemangy at 9:45 AM on September 12, 2015 [2 favorites]
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In addition, pay for something on credit regularly - groceries or gas. Something where you can set up a monthly auto-bill pay to take care of it.
Your instincts are fantastic, but to build credit you need to use credit. Use it for something predictable and already funded.
posted by A Terrible Llama at 6:12 PM on September 11, 2015 [3 favorites]