As you probably know, I graduated debt-free with $10,000 and although I’ve had a mortgage, I’ve never had any consumer debt.
Part of how I’ve been able to avoid consumer debt is by using my credit cards wisely.
Here are my simple (but highly effective) rules I have for my credit cards.
Always Pay Off the Balance Each Month
I got my first credit card when I was 16 and since then I have never paid one cent in credit card interest. I usually have a balance but it always gets paid by the end of each month, and it never gets carried forward.
One way I found to easily make sure the balance gets paid is by making it automatic. When I got my first credit card, I submitted a void cheque from my bank account so that the monthly balance will come out automatically.
This did 2 things – it made me think twice about buying more than I could actually afford (since the amount would come out each month) and it made it easy to start building credit. If I had to worry about manually paying the balance each month, there would definitely be a month or two that I would forget – and I’d be charged interest.
Minimize Credit Card Fees
I have 3 credit cards and two of them don’t have any fees, and I chose them because I knew the fees would add up over time.
My latest credit card (Scotiabank Momentum Visa Infinite) has an annual fee of $99, but the bank has agreed to waive it for the first two years. It is a cash back card, so I’ve made sure that the amount of cash back I will earn in one year is more than enough to cover the annual fee.
Credit cards are so competitive that unless you’ve done the math and a card is the best one for your spending (like in my case), there really is no reason to pay unnecessary fees.
Keep All Cards Active For A Long Time
When I got my first credit card at 16 years old, I used it regularly to build my credit rating over time – and I still do. I definitely don’t use it as much since I’ve switched to more lucrative reward cards, but keeping it active over a long time has helped build my credit – and increase my credit score.
Since obtaining my first credit card I’ve obtained two others – but have been careful not to close the original one.
There are no fees and I always pay the monthly balance, so I’m effectively just using it as a cheap way to continue building my credit score.
Insist on Reward Cards
When I get a new credit card, I use it to build my credit rating (long term) but I also make use of the many different reward programs available out there (short term). With so much competition between cards, there are plenty of different reward cards available for everyone.
My latest card is a cash-back card that pays me 4% cash-back for all gas and grocery purchases. Since my wife and I eat organic foods we spend more on groceries each month than a typical couple would. This card fits our spending perfectly because it maximizes the cash-back we receive each year.
Regardless of your financial situation, make sure you’re getting some type of reward for the spending you do.
Build Credit Over Time
I had my first credit card for over 6 years before I applied for my second one, and I just recently received a third one.
If I had applied for multiple credit cards within a short period of time, it likely would have hurt my credit score.
I think it’s important to build credit slowly over time and not apply for too many credit cards at once to make sure your credit score is protected.
Rather than applying for random credit cards, I’ve only applied for cards that I know I would qualify for and (more importantly) ones that I knew would give me the best rewards.
Conclusion: my rules for credit cards are straight forward and almost boring, but they’ve allowed me to achieve a near-perfect credit score – which has led to some serious negotiating power on things like the mortgage on our home and saved us thousands by getting a lower interest rate.
Do you have any rules for your credit cards?