When we were growing up, our dad stressed that having a great credit score is what’s going to put you ahead of everyone else when it comes to buying a home, a car, getting a low interest rate, and getting a great job (especially in the financial industry). And you know what, he was right in terms of those topics of why credit is needed. Our Dad also always explained the reasons why a credit card is needed to building credit.
As little girls looking up to our folks. There were so many things we didn’t know like the importance of credit, ways to maintain your credit score, and how to avoid falling into the trap of the consequences of credit cards. All we knew was to protect your credit score at all costs and to have great credit, but we didn’t know how a credit card can help when trying to achieve this.
Luckily, our parents did a really good job teaching us financial responsibility when it comes to the credit card. Credit cards, or we like to call them sometimes “trouble” cards, can have some advantages IF you use them CORRECTLY.
Yes, we all can agree that having a credit card can have really bad consequences and those cons can sometimes outweigh the pros. But people really don’t talk about the benefits of a credit card.
Disclaimer: We are not for credit cards when it comes to buying things that you don’t need to impress other people you don’t like. We are not for using credit cards if you can’t purchase it in cash or you can’t afford the purchase. And, we’re especially not for credit cards if you’re not going to be paying them off in full every month! That’s where you can fall into debt! WE ARE FOR CREDIT CARDS TO BUILD YOUR CREDIT ONLY!!
Here are top reasons why a credit card is needed:
Why a credit card?
People tend to think that getting a credit card is the worst thing in the world. It is only the worst thing in the world if you fail to use it appropriately and responsibly. Having a credit card is actually pretty important now days. You need to have credit just to rent a place, and in order to buy a house, you need a 580 score or higher to get a mortgage loan. If you are considering buying a home, credit is needed. To get any type of loan whether it be for a car or a business loan, you need credit history.
Here are some reasons why having a credit card is beneficial for you:
- Credit cards are safer than carrying cash. If someone steals your cash, then you’re fresh out of luck. But if someone steals your credit card; you’re not liable for the fraudulent purchases.
- If you are responsible, you can build your credit over time.
- If you have a rewards credit card, you can get rewarded by paying for things that you would be doing anyway like paying your car payment, grocery bill, gas, daycare, electric bill, etc. (You’re going to be paying for these things anyway, why not get rewarded for your purchases! The rewards can be redeemed for flight tickets, vacation, or cash in your account.) Do this wisely.
- Hotel & Rental reservations can ONLY be done with using a credit card. Most of the time, when making a hotel or car reservation, they typically place a hold on your account for incidentals. You would rather have the unsecured money tied up instead of your bank account with your funds in it because you never know when fraud can occur. You cannot use cash when doing a reservation so if you like to travel often, then having a credit card is the way to go.
How to establish and/or improve your credit score:
Improving your credit score should be the main goal of having a credit card and getting the lowest interest rate possible. The higher your credit score, the lower your interest rate can be, and your score determines how much you have to put down for your future home. You can check your credit report for free once a year at Annual Credit Report.com.
Here are a few ways to establish and improve your credit score:
1.) Use your credit card for everyday purchases
If you are going to be purchasing things that you would be doing anyways, (ex. daycare, gas, mortgage, car payment, etc), then why not build your credit score at the same time?
2.) Stay below 30% usage of using the credit card
You should NEVER go over the 30% usage. People think that you have to use the whole balance to build your credit score, but in reality, you should only be using a low amount. This helps your credit score (due to credit utilization which can affect your score) . For example, if you get approved for a credit limit of $500, stay under the outstanding balance of $150.
3.) Pay off your whole balance in full every month
It is a myth that when you make the minimum payments on your payment that you will build your credit score faster. That is a lie! It takes the same amount of time whether you pay in full or you make the minimum payments. Also, this is where people get trouble when they only make the the minimum payment on their credit card. Interest kicks in which takes longer to pay off especially if you have a high interest rate and you can fall victim to debt.
We advise you just to use your credit card for gas or groceries and pay the amount in full every month! You will not get in trouble if you budget in your gas and groceries into the payment because that would be included in the budget anyway.
The Importance of Building Your Credit Score
Maintaining a great score is so important and should be the primary focus of why you’re getting a credit card in the first place. You should not be getting a credit card if you are going to be buying things you can’t afford to impress people that don’t matter to you.
There are important factors to consider when building your credit score. Establishing great credit is so important throughout your life. The reasons include:
1.) Landing a great career
When you’re working in a field, especially when you’re dealing with people’s money, they want you to have good credit yourself. How would it be if you’re a Banker or a Financial Advisor, and you’re telling people how to manage their money, when you can’t even manage your own money?! C’mon now.
You have to be able to lead by example and that’s why these employers (especially in the finance industry) want to see how responsible you are and to see if you can manage finances.
A negative credit score can harm your chances of landing your dream career! What’s the point of going to college, and getting your degree in finances/accounting and you can’t even get a job in your field (juss sayin’).
2.) Getting your first home
Buying your first home is everybody’s dream. Knowing you can grow a family and build memories in your first home would be a dream come true. But your dream can turn into a nightmare if your credit score is wiggity wack. In order to buy a home, mortgage lenders want you to have a credit score of at least 580!
If you have great credit, you can also get a lower interest rate and you wouldn’t have to put so much down on a payment. Also, if you have GREAT credit, Private Mortgage Insurance wouldn’t even be a consideration. Think about it!
3.) Getting insurance
Did you know, your credit score plays an important factor in you getting a good car insurance rate. There has been a study with insurance companies that people with poor credit has a higher chance of filing insurance claims which means a higher insurance premium. Don’t be the person paying more on insurance when you can easily pay lower with great credit!
4.) Getting lower interest rates
When you have a high credit score, you are rewarded with a low interest rate which is a major benefit of having great credit which results to you paying lower finance charges on your mortgage.
5.) Getting qualified to be a tenant when you’re renting a house or apartment
Even if you’re renting, landlords are still checking your credit history to see if you would be a suitable tenant to live in their property. They want to see if you can pay rent on time, so maintaining a good credit score, even though you’re not buying a home is still an important factor when deciding on a tenant. Most likely, if they see a low credit score, they will pass you up for the next tenant with a good credit score.
Choosing the Best Credit Card For you
There are different types of credit cards out there and the one you choose are totally up to you. If you are new to the credit card game, then maybe the Secured Credit Card is right for you. If you enjoy traveling and getting rewarded for things you would be doing anyway, then a Rewards or Cash Back Credit card is the one for you.
Working in the banking industry, we educated people from young to old on which one works best. BUT we strongly recommend you doing research on the different credit cards out there.
Don’t fall victim to getting a credit card just because you want to tell everyone you have a credit card. You are getting a credit card to build your credit, remember that!
Here are the different types of credit cards out there:
1.) Rewards & Cash Back Credit Cards
This credit card allows you to be rewarded for purchases. We like using rewards credit cards because you can redeem the rewards into cash back into your account or redeem them for travel.
2.) Secured Credit Cards
A secured credit is you putting down your own money on the card and you would use it like a regular credit card. You’re basically using your own money as collateral. With the secured credit card, all you’re doing is skipping the step of applying for a credit limit. If you’re putting $300 on the secured card, that is your credit limit. Secured credit cards are good for people who have:
- No credit history
- Bad credit
3.) College Credit Cards
Please caution your young adult children to be careful when getting this credit card. This credit card is designed for college students who are in college, who typically do not have a job or they make a very low wage, and they typically get a high approval limit (high limit considered to them).
The credit card companies prey on the college students because they know students will get them and fall victim to the finance charges resulting in paying more towards the interest. Be mindful and please educate your children on the importance of credit.
4.) Travel/ Frequent Miles Credit Cards
This credit card is good if you do an extensive amount of traveling. This type of credit card can be redeemed for flight tickets, hotel stays, and many more.
Beware of the interest rate and fees on all credit cards. There are some credit cards that have annual fees that range from $25-$450 so pay attention to those types of cards.
Always do your research to see which credit card works best for you.
Always remember a credit card can build your credit so be wise and responsible in whatever decision you decide to make. The main goal for credit cards is to build your credit over time and not to purchase things when you can’t afford it. We hope you enjoyed our top reasons why a credit card is needed. Please let us know why a credit card works for you!