Credit Cards

Some people would tell you that credit cards are evil (example Dave Ramsey) and if you have no self-control that very well may be true but it does not have to be. The problem is people see the amount of credit on a credit card as money. It is not. Your credit limit has no relation to the amount you can spend. Between my husband and I, we have more in credit than we make in a year, that does not mean we can spend that amount.

You should, however, never spend more than ten percent of your credit limit, even if you do have the money to pay it back. The credit bureaus will ding your credit score if you charge more than ten percent and ding it even more if you spend more than thirty percent.

The best way to get used to using a credit card, is as a debit card. When you purchase something, either put the money aside or pay the credit card online THAT day. Do not wait till the end of the month or you will end up screwing yourself up.
If you do screw up and max out your card, stop. Shred it and start paying it down. Do not get another card until you have gotten used to using, and paying in full every month, one card.

Once you get used to using one card, you likely will have a credit score that will allow you to get a rewards card. Look at your spending and pick one to apply to. Put your first card aside and start using the reward card. Do not pick one with an annual fee, they are not worth it. It is likely that your first card won't be useful after the first year or so, but you can leave it open (use it once a year), if you would like. Closing it will have a negative affect on your credit score, until you have had the reward card for a while, unless you have had a student loan or were an authorized user on another person's card for longer then the length of time you had your first card.

I prefer to have multiple cards because they give different benefits, for example I and my hisband have a Fidelity AMEX which gives me two percent back into my 529 account, a discover card that we use when the five percent back categories work for us (groceries, gas etc.) and for our school expenses (they only take discover and visa) and a couple visas that really are not that good. We are still looking for a good visa and are currently considering the Fidelity Visa that gives one and half percent back into our IRAs.

Anyone else have an opinion on credit cards or information I missed?