Credit Cards Are Not Evil: Part 1

$ Many of you probably hear stories about friends and family who are loaded with crippling credit card debt. Lots of people say credit cards are bad. But I’ve got a newsflash for you: while credit cards are bad if you use them the wrong way and put yourself in debt, if used appropriately, they’re amazing!

This post is part of a two part series on credit cards. Today, we will talk about how you can use credit cards to build credit. For those of you that one day want to use your VA LOAN to buy a house, PAY ATTENTION TO THIS POST! Our next post will discuss the value of credit card rewards points and programs. That will be an exciting post as you’ll learn how to get into the American Express Centurion Lounge. We’ll start with the boring stuff:

Your credit score is a number between 300 and 850 and determines whether banks will approve your for loans, lines of credit, and credit cards. Your score is determined by five factors, each with a different level of impact on your overall score. The diagram above depicts those factors. A brief description follows:

1. The first factor is payment history. If you fail to make payments, your score goes down. This is where people get in trouble with their credit scores. Paying your full bill every month, however, boosts your score.
2. Accounts owed is the second largest factor. Credit companies analyze the percentage of your total available credit used. If this percentage is high, you are at risk. If it’s low, your score is generally higher.
3. The length of your credit history is the third largest factor. My advice: if you’re young, get a credit card now. It will help boost your score in the future. Make a small purchase every month and pay it off. Longer history means a higher score.
4. Credit mix is the mix of credit types you use. An example: Credit card and mortgage… Diversity is good, but not entirely necessary.
5. New credit is the number of “pings” on your credit recently. The more recent searches on your credit, the lower your score. You can keep this down by not applying for more accounts.

So why does all of this matter? Well, if you ever want to buy a house, having a great credit score (750+) will save you a ton of money on your mortgage. Who doesn’t like saving money on their dream home?

More importantly, if you ever want to get into the American Express Centurion Lounge (an amazing airport lounge with loads of complimentary food and beverages) you’ll need to have good credit. We’ll talk about that in our next post.

So for those of you that have read this far and still don’t have a credit card, my advice is as follows. Get an introductory credit card with no fee, buy a soda on it once a month, and pay it off… especially if you’re young (I wish I had done this at 18). The payment history and credit history will help you in the long run and soon you’ll be sipping Mai Thai’s in the platinum lounge. $