By Rudro Chakrabarti
Growing up, I was terrified of credit cards. I trace it back to my dad driving me to school most mornings, listening to the news every day — followed by classical or jazz channels.
One time the anchor went on about all these people, spending thousands of dollars they didn't have, using plastic cards. And his voice morphed into 'wah wahs' straight out of Charlie Brown — as the numbers started getting bigger and bigger.
From that moment on I resolved to never touch a credit card. I continued to hold onto my debit card until I was 20.
Looking back, the anchor must have been talking about the staggering figures posted up for credit card debt that year. The New York Fed releases a quarterly report for household debt, and as of March 2019, America's collective credit card debt is sitting at $870 billion.
Overall household debts have risen for 18 consecutive quarters. We're buying more, borrowing more, dreaming more. Way more than we have.
But that doesn't mean credit cards are bad. They're simply a tool, and that's something I came to understand later on. Used correctly they have a number of benefits, which — once I grew past my initial fear — I was able to harness.
Look how far I've come!
My current credit profile
| Me | Average in the U.S. | |
|---|---|---|
| Credit Score | Excellent (750 - 850) | Fair (675)* |
| # of credit cards | 2 | 4** |
| Credit limit | $15,000 | $22,589** |
| Average Balance | ~$2,163 | $6,028** |
| Credit utilization | ~14% | 30%* |
*Averages from Experian's State of Credit 2018 report
**Averages from Experian's State of Credit 2019 report
Yes, I have two credit cards now.
Now I didn't share this as a humble brag. I'm just trying to provide a frame of reference for my experience. I didn't include exact values because they say you shouldn't share any credit details on the internet. But here I am. Sharing.
What credit cards do you carry? I currently have two cash back credit cards, with different reward categories. One card gives me higher cash back on groceries and gas, and the other gives me fixed rate cash back for all other purchases.
How did you choose? If you're going to get more than one credit card, definitely take a look at rewards cards that work well together. I personally chose cash back because I like the flexibility, but there are great rewards programs out there for travel credit cards.
How the heck is your credit score so high? I keep accepting credit limit increases to decrease my utilization ratio, and I make sure to check my credit score often (some might even say neurotically). I also never carry a balance, make sure to pay my bill on time every month, and sometimes pay off large purchases right away.
How I cured my credit card phobia
No, these are not mine.
What really hooked me was credit companies satelliting onto college campuses. And getting ripped on by my friends and family.
But as I learned more about student credit cards, and special offers available to students — cash back, no annual fees, even rewards for maintaining good grades —I realized I might be missing out and put in an application.
Getting your first credit card is like credit Catch-22 — how are you supposed to qualify without a credit score? I managed to qualify because I had a part-time job, and steady deposits into my bank account (though my starting balance was only $1,000).
If you get rejected, don't be discouraged. You can apply for a secured credit card or try again another time.
What I realized about credit cards
Mainly I realized I could buy stuff online off Amazon with my credit cards.
1. They don't have transaction limits. My debit card and checking account felt limiting, since I could only make a certain number of transactions a month before getting charged a fee. With a credit card, I can make multiple small purchases without clutching the change.
2. They're only scary if you use them like extra money. I keep track of my monthly income, and never spend outside of my monthly budget. Even if an emergency comes up, I can back up extra credit spending with my emergency fund.
3. Credit cards help buy time. If I want to splurge for my anniversary, but also need to, you know, buy groceries, I don't need to worry about having the money right there. All my purchases are consolidated onto my credit card bills at the end of the month.
4. Higher credit limits are good. When I got my first credit card I nearly maxed it out a couple times. What I didn't realize is that credit utilization (how much of your limit you spend) impacted my credit score. With a higher limit, you naturally decrease your credit utilization ratio. Which brings me to my last major discovery.
5. Different factors affect credit score. I always thought credit card companies only cared about timely bill payments. It turns out paying your bill on time only accounts for 35% of your credit score. The other factors that affect your credit score are:
- Credit utilization ratio — accounting for 30%.
- Credit history (how long you've used credit) — 15%.
- New accounts and hard inquiries — 10%.
- Taking on different types of credit (loans, lines of credit) — 10%.
Richard Glunt