why should you use a credit card?

If using a credit card requires an extra step of paying off a card and monitoring it, why should you do it? Long story short – the benefits are worth it. Here are a few examples of benefits you get from a credit card:

Build credit – If you never have a loan or a credit card, you won’t have a credit score. You need one to get a loan or a mortgage one day!

Large sign-up bonuses – Spend a certain amount in the first few months and get $500-1000 worth of bonuses from the credit card company. This is the primary method to get your trips – it’s all in the bonuses!

Protection – Price protection, purchase protection, trip insurance, etc. Flight delayed? Some cards give you $500+ for hotel, food, and clothes. Accidentally lose your new phone? Some cards reimburse your purchase completely. New TV go down $100 in price? Some cards reimburse you the difference.

Fraud benefits – if your debit card gets stolen, the thieves have your bank information and your money. The bank usually will reimburse you (if you have a good one), but in the meantime your empty bank account means you can’t buy food, pay bills, etc. If a CC gets stolen, your actual bank account money is safe – but American Express is on the line. They’ll fight a lot harder to get their money back than your money. 

What are credit card points & how do they work?

Credit cards can easily be misunderstood, or misused. Tons of families have thousands of dollars of credit card debt. What most people don’t realize is that credit cards don’t have to incur credit card debt. Buying something with a credit card does NOT mean that you are going to incur debt. Erika and I have tons of available credit – but we only spend the amount that we’d normally be able to spend with cash. That way, we know we can pay it off immediately and have zero debt.

For example: Let’s say you buy a pizza. You now have a $5 balance on your credit card. You could pay it off today, tomorrow, or when your “statement” posts at the end of the month. As soon as that “statement” posts, you have anywhere from 21-30 days to make that payment to avoid paying interest. If you pay it all off, you pay nothing in interest. The bank only requires a minimum payment, but you should never do that. Every month you should pay off the entire balance in order to benefit (and not be hurt) by this process.

This isn’t for everyone. Certain people have a hard time with spending and are physically unable to control it. If that’s you, credit card points may not be your thing. The downside of buying things you can’t afford, paying interest, and getting into debt is FAR worse than any potential benefit of points or miles. That being said, good credit card behavior can be learned! There are many people who were simply never taught how to use credit cards effectively, but now are experts in the points game. It’s not as hard as you think!

how does a credit score work?

Most people know what a credit score is, but few know what actually defines your credit score (or what their exact score is). Knowing what affects your score is helpful in knowing how getting credit cards might impact you. A credit score is basically a bank’s assessment of how likely you are to default, or spend all their money and not pay them back.

 So what would churning (getting cards for the sign up bonuses) affect? As you could probably guess, only your credit utilization, length of history and recent inquiries will be impacted – and your credit utilization is actually a positive effect! For this reason, getting a few new cards will likely surprise you by making your score go up! Both my score and Erika’s score has gone up 40-50 points since starting with points. Why? My payment history stayed perfect and my utilization went down ($1 balance out of $10,000 limit is better than $1 out of $1000). Since that accounts for 2/3 of my score, my score went up.

Know this: Getting a new credit card won’t hurt your credit score. Misusing your credit card will. 

credit score breakdown

FICO describes the credit score basic structure as follows:

35% – Payment History. Pay on time, and banks trust you more with their money.

30% – Credit Utilization. If you have a $10,000 limit and every month your ending statement is $10,000, it’s scary for the banks. You’re using all their money! If you only use $50 of your limit, it means you are a much lesser risk of default.

15% – Length of history / average age of accounts. If you don’t have much history, it’s hard for the bank to judge you. Longer history and older accounts makes you a better candidate.

10% – Recent Inquiries (new applications for credit cards). If a bank just gave you $100 yesterday, they are less likely to give you another $100 today.

10% – Types of credit. If you have multiple types of credit (mortgage, car loan, credit card), then they know you can handle it responsibly.

Now that you've been briefed, learn how we rack up lots of points!