Tuesday, January 18, 2011

Credit Card Series: Introduction

I have been asked by several friends and readers to start a series on how to get the most out of your credit cards. This is a really controversial topic since there are many myths out there about credit cards both god and bad. I hope to show you over a series of posts that in the right hands they can really work for you. However, in the wrong hands they can destroy you. This is why I want to start the series with a few general warnings.

1) Credit cards are not for everyone. If you have racked up debt before through improper use of credit cards you should stay away from them. Addiction and credit card abuse is just as real as alcohol abuse. A known abuser should not keep a credit card.

2) If you currently have debt a credit card is probably not for you. Wait to pay off the debt and get more financially stable before opening a credit card. If you have just filed bankruptcy a credit card is not for you either. Companies will be clamoring to give them to you because you are forbidden from declaring bankruptcy and absolving the loan for several years. Do not take the offers. Work on building back your savings and heading back into financial stability first.

3) If you are not a conscious shopper then you should not use a credit card for things like grocery store purchases. With cash you will have to spend exactly what you planned to spend - the only cash you have on you. But with a credit card you can start throwing all sorts of extras in your cart. If you are a conscious shopper who goes with a list of items and a budget and sticks to it then go ahead and use the credit card to reap the rewards.

4) Nobody knows how credit scores in the U.S. are calculated because the formula has never been released. However, certain things are known and are common knowledge. Applying for a card means the credit card company will check your credit report. This is a "pull" on your credit and will cost you a few points but generally bounces back within a few months. Being late on a card payment will pull down your score more than just a few points. More on credit cards and credit scores in a later post.

I also want to put up a few general tips:

1)If you are spending mpney anyway, you might as well put it ony our card. For instance if you pay private school tuition for your child (and you have the money for this in the bank) by paying it with a card you can order a tremendous amount of points/cash back/miles. By paying the card on time, as you would pay the tuition on time normally, then you avoid interest and lose nothing.

2) Does your company reimburse you for things? Put them on your card! You will get points for spendin nothing.

3) Look at your card policy for extra perks. Many cards include things like rental car insurance and consumer protection.


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