I will probably get slack for writing this out but here it goes. Credit cards are not bad! There I said it. <everyone gasps and the room goes silent>
Look, as with most things in life, it’s all about how you deal with them and your level of self-control when it comes to your spending. Yes, I know that there are those out there who constantly preach all credit cards are evil and there isn’t a need for credit EVER. On this topic, we will just have to agree to disagree. Unless you are born uber-wealthy, there are going to be times that items have to be financed.
Keep in mind that your credit score is used for far more things than JUST financing things and having credit cards. Items like insurance rates are also based on your credit score. Also, not having credit is just as bad as having bad credit. It does you no use when you are in a position where you need to use it.
The solution is to have only a couple of credit cards and to use them in this manner. I suggest one that is for all ordinary purchases, clothes, groceries, gas, dining out, etc. This card should be used in place of a debit card and should be paid off either weekly or bi-weekly. We also suggest another card that should be used for emergency purchases only. When something is placed on this card, it is ideal if the balance on the card never crosses 30% of your combined credit limit.
As an example, let’s say that you have 2 cards as I have described above.
Card A has a credit limit of $4,000. You place all of your ordinary expenses on it and pay it off every 2 weeks when you get paid.
Card B is your emergency card and has a $6,000 credit limit.
Card B should never have a balance higher than $3,000 ($10,000 total credit limit x 30% = $3,000)
Interesting idea. Does the credit bureau lower your credit rating for paying 2x in a month?
Hi Christie,
Great question! No. It actually can help your credit score and reduce the amount of interest paid. For those that carry credit card balances, making a habit of paying bi-weekly also prevents late fees and over limit fees from forgetting to schedule payments.