Adulting 101 Part 3: Credit Cards

If any of you know me in person, I love raving about my credit card perks. I have to filter my love of credit card perks in front of strangers, because they already think I’m weird enough as is. One of my friends hates my rambling, because he’s a spendy dude, and having a credit card would sink him. Two types of people.


Getting a credit card is a clear process. You apply for a credit card, and tell them stuff like your income and your credit score, which is basically a rating for how reliably you pay back debts. If you get accepted, you get a card with a credit limit and an APR. The credit limit is how much borrowed money you can spend with that credit card at once, and the APR (annual percentage rate) is how much interest you accrue for your spending habits.


When you spend money with a credit card, that money gets added into your credit card balance. Every 30 days, you will receive a credit card statement that has your statement balance (how much you owe the credit card company), and your minimum payment (the minimum you have to pay back the credit card company). If you don’t pay back your minimum payment, your credit score gets dinged. If you don’t pay back all of your statement balance, you accrue interest on the card for next month.


Credit cards aren’t inherently evil, but they’re easily abused. A lot of college kids end up in credit card debt because they treat credit cards as free money. It’s not free money. It’s a loan. Don’t screw over your ability to buy a house in the future because for a few handles of Fireball. 


There are however, many good reasons to get a credit card, and for responsible spenders, these good reasons definitely outweigh the bad. Individuals who don’t have trouble living below their means should definitely be using credit cards.


For one, having a credit card enables you to build a credit history, and therefore improve your credit score if you’re responsible. Having a good credit score will benefit you magnitudes down the road when you apply for a loan. People with good credit scores get good interest rates, and people with bad credit scores get bad interest rates, or just plain rejected from a loan. One of the key factors for credit scores is your age of credit history. While an irresponsible college student with a credit card may be worse off than a responsible graduate without a credit card, a responsible college student with a credit card is better off than a responsible graduate without a credit card. The amount of time you’ve been using a credit card matters.


The second benefit is protection. The form of spending I use on the daily is going to be the most likely one that gets identity thefted. If someone uses your card information and spends money on themselves, you’re going to have to dispute some transactions. Because debit card spends involve actual money, and credit card spend involve promised credit, you’re going to have a much easier time disputing credit card transactions than debit card transactions. 


Oooh, this is my favorite part. Perks perks perks. Your perks vary depending on the credit card you use, but these perks range from travel points, to cash-back rewards, to insurance, to even free airport lounge access. It really depends on the exact credit card you have, and the better your credit score, the more access you have to different credit cards. I can say from personal experience that I no longer pay for domestic U.S. flights, because my credit card points cover me.


So yes, credit cards have awesome benefits, but they do need to be used wisely. Some tips follow.


Your best bet for responsible spending is to treat your credit card spending like actual cash. If your credit card balance is higher than the amount you actually have in the bank, consider that a problem. Pay your statement balance in full every month to avoid accruing interest. Do this with absolute discipline.


Every 6 months, ask to increase your credit limit. This usually involves a simple phone call. DO NOT TREAT THIS AS A REASON TO SPEND MORE. The reason why this matters is that one factor of your credit score is the ratio of your spending, to your actual credit limit. A low percentage is preferable, and bumping up your credit limit lowers that percentage.


Don’t delete a credit card just because you no longer use it. Your credit score also takes into account how old your credit card history is. Cancelling a credit card wipes that history, so it’s usually not in your best interest.


Research your perks. Let the perks flow through you. Cash-back credit cards are kinda boring, but there are a lot of advantages you can find if you just skim through the benefits section. 


Credit cards aren’t evil, but they also provide you the ability to screw up if you’re not smart about it. Have good judgement, and try to spend your money wisely.


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