Credit Cards

I know most budgeting and finance blogs will tell you that credit cards are evil and they are just a mechanism for debt. Most blogs recommend getting rid of credit cards and using cash to pay for most purchases.

I disagree.

In April 2007 I did not have a good credit score. It frustrated me because not only did I want to buy a house in the next few years, but it was a hassle to open up any new accounts. Getting a cell phone plan in my own name without a deposit was completely out of the question and that made me feel depressed about the future. So I applied for a secured Visa through Bank of America to help build my credit.

In the 8 months I had the card, I paid it faithfully on time and actually had automatic payments sent to it every week from my checking account. I never carried a balance and generally never had more than $100 charged to the card on any given day.

By December of 2007, Bank of America upgraded me to a regular credit card and doubled my balance. Through those 8 months of paying the card faithfully, I was able to raise my credit score from 649 to over 700 simply by paying on time.

In December of 2007 I also applied for a Capital One credit card. I have a similar set up with this card. I automatically transfer $100 to the card every week from my checking account. The only difference with this card is it is one of their rewards cards. So I receive 5 points per $1 on everything bought at grocery, gas and drugstores (and 1 points per $1 on everything else). Because the rewards are higher for some things and not for others, I only use the card for grocery gas and drugstores. I have a budget set up already for grocery and drugstore purchases, so it is not often that after my $100 weekly allowance, I have more than $100 sitting leftover in the account.

I do pay an annual fee. It is $29. The reason I did this is because if I were to not pay an annual fee, I would only get 2 points per $1 on the purchases I get 5 points per $1 on now.

In the last 6 months, I have been able to redeem $150 worth of gift certificates from Capital One. I always pay on time and never carry a balance so I do not pay any interest.

In the next 2 weeks, I will have enough money for another $50 giftcard, making my net gain $171 even including the annual fee.

Those $150 have helped buy furniture for the new apartment and even our wireless router. I only cash in when I have enough for the biggest "deal" with the points. You can cash in 750 points for a $5 giftcard, 1500 points for a $10, 2500 points for a $20 giftcard, etc. However, if you redeem at 5000 points, you receive a $50 giftcard, 10,000 points a $100 gift card... so it's only worthwhile for me to redeem at 5000 points and above.

I'll say that winding up with $171 just from using this card is a frugal skill, if you are careful with them, credit cards can be useful tools.