I said that I would add my rules for a credit card company and so I shall.
1. I will pay my balance in full each month. This is the standard that you set for yourself, and the most important one at that. There should never be any reason whatsoever to carry a balance on a credit card and incur the high interest rate charges that come with it. The only reason to carry a credit card is as a measure of convenience. If you do not have the money to make the purchase, you do not make the purchase. It is that simple. You must commit to yourself that you will not spend money you do not have. If you have to finance something there are better and cheaper ways to go about it, but saving for the price in full first is the best option you can make. The credit card is only to be used in place of carrying cash or writing lots of checks or other matters of transaction convenience. It is only used to consolidate purchases so that you are writing one sum total payment check, when due, on time, in full, each month always. No Exceptions.
2. Thou shalt incur no Annual Fees. First and foremost that means no annual fee, period, exclamation point and end of discussion. The very first thing I look at for any credit card offer is disclosure on annual fee. If there is one, I don’t need to read any further for it is off to the shredder. Beware of those that claim no annual fee but adds in small print ‘for the first year’ and then they charge an annual fee after that. Only be willing to take the bite on that one if it is your fully committed intention to cancel before the year is up and then follow through. By the way, they are counting on you to forget about it so if there is the slightest chance you will, don’t take their offer. Actually even your intention isn't enough, no annual fees period.
3. Thou shalt have no charge if paid in full during the grace period. This one should be standard by now but double check to make sure that it is. If you pay the bill in full by the due date of the bill there should be no charges what so ever. If there is no grace period or there is any way to assess fees that shouldn’t be there, then drop them like a hot potato.
4. Thou shalt not pay an excessive interest rate. Even though we said that we are going to pay off our balance in full each and every month so as to incur no fees and no interest charges, you don’t want to accept a card that has a 21% or higher interest rate just on the off chance that something should go wrong. Stuff happens and when it does you want to minimize the consequences as much as possible.
5. Thou shalt pay no excess fees. This goes along with rule four. If the offer made it this far without causing you to throw it away then look at the fees and see if they look excessive. Don’t compare them to other fees in the industry to decide if they are normal charges but compare them to your own standard of what seems reasonable. If a fee seems high by your standard it probably is. Fees everywhere have been inching up on all financial services to the point that they have lost their sense of perspective and proportion. It is time to use the power of the consumer and decide not to accept unreasonableness.
6. Thou shalt ask “What’s in it for me?” Lastly and I do mean last, what perks does the card offer? My first credit card was a Discover Card back when they first came out, for one reason, they met my criteria of no fees and they paid cashback. I liked that. I no longer like the Discover Card and I will report on it in another entry. I still like to get a kickback on my purchases. There are a myriad of perks being offered these days, some are better than others so compare carefully. Many of the perk cards come with a hefty annual fee, don’t bother with them, you can do better. Some provide airline miles, some simply provide points, I still prefer cash back as it can be used on anything at any time.
7. Thou shalt not change thy spending habits. Now that you have your credit card you must not change your spending habits, only your payment habits. This is especially important if you happen to have a card that has perks. Just because the government thinks it can spend its way into prosperity does not mean you should. There is no way you can create an income for yourself by spending $100 for a $1 return, so please don’t try. You can however look for ways to use your card in places that you used to use only cash as long as there is no added fee to do so. The daily lunch run can be handled by your card rather than cash at many places fast food joints included. Grocery stores almost expect you to use a card now. I will pull mine out even if all I am getting is a pack of gum. Again, you must remember that you are not changing your spending habit to earn perks; you are only changing your paying habit to earn perks. Big difference.
8. No matter what the available credit balance is thou shalt not try to use it all. The Credit balance that is issued on a credit card is an interesting side note and nothing more. It is a ceiling amount that can easily be raised and lowered but it is inconsequential if you are in charge of your account because you will never come anywhere close to using all of it. There is usually no need. It is an artificial measuring device that the card companies use; it is not a measuring device that you use on yourself. You set your limits. Remember that you have higher standards. Just because they say you can doesn’t mean you say you can.
If you have any self control issues at all then forgo all the above and use strictly cash. Give yourself an allowance that you carry in your wallet or an envelope or whatever system you choose and live from that knowing that once that money is gone, it is gone and will not be replaced until the next allowance cycle. Until you master yourself you will not master your money but that is a whole other set of standards and tools.
One side benefit of the above, I have a monthly balance that is paid in full each and every month which reflects nicely on my credit score. The monthly balance is far less than the available credit which also helps the credit score. Do I care what my credit score is? Not really since it should be perfect but isn’t. It is the most abusive and highly inaccurate financial tool used today which makes me wonder why it is given so much power with so little oversight or liability on its part. My credit score is fairly high I am told. I know that it is just a measuring device that has become an industry unto itself. I want to live my life and have my finances such that having a credit score or not will make no difference whatsoever in my life. Contrary to popular belief debt is not the natural order of life. If you think that it is then it is time for a change of mind. You will find that life gets easier if you avoid debt.
Well there you have it. This pretty well sums up my take on credit cards. By the way, I do not have a pocket full of them. Two is usually plenty, three tops, from different companies or banks. That way you have a back up if one becomes unusable for any reason such as a computer failure on their end. It’s rare but does happen.
Just remember that this is you we are talking about. You matter. You come first. You decide the rules you are willing to play by and you decide which ones you will have nothing to do with. You are the consumer, you have the say. You live with the consequences either way.
This is Ed Nef with a view from the Farr West.
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