Teach me about Credit Cards [Solved, Lock Please]

Enc

I have somehow gone most of my life without a credit card, mostly because I don't like debt as a thing. However, after speaking with several contacts in the mortgage industry I've been enlightened that If I am to get a loan for a house in a year or two I'll need to demonstrate more lines of credit than my usual bills and car. I'm looking at credit cards, and don't really know what to look for outside of a low interest rate.

H/A, what are your opinions on Credit Cards and where is the best place to get them through? If it is helpful, I live in a large, East Coast US city.

MushroomStick

Go to your bank and ask for a credit card. Make sure it doesn't have any annual fees or anything and don't let them talk you into a bunch of extra services that you don't want. Then maybe buy a laptop/tv/etc. and gradually pay it off over the course of a few months and then you should at least have more than nothing on your credit history. Bonus points if you can get a store card or something and get 0% financing when/if you do the tv/laptop buying thing.

TychoCelchuuu

Interest rate isn't a big deal because you'll be paying it off each month (you will, won't you?). Generally you want to look for the card with the best reward point offer (and of course no annual fee) but if your credit history isn't so great you might just have to settle for whoever approves you.

Dr. Frenchenstein

Yeah if you are looking to get a house in the near future, credit history is a big factor. Mush makes some good points, avoid those cards with yearly fees. Honestly, try to get the lowest rate you can, but don't be alarmed if you can't get a good rate. No credit is just as bad as bad credit.

Does it matter if you pay it off gradually? I'd buy stuff each month, but pay it off immediately, so that bad interest rate doesn't hurt you. and yeah, get a best buy card or something and buy something for 0%, just remember to pay it off. Those are treated like actual credit cards, even though you can't use them anywhere but that store. Keep in mind they have TERRIBLE rates for normal purchases, and if you don't pay it off in time, you get hit with ALL the accumulated interest from the entire purchase, not just what is left when the time ran out.

Enc

Yeah, the plan is to use it to pay off a bill or something each month just to build credit, roundabout but necessary, I guess. I have good credit from my other lines of purchases, (cars and whatnot), but not a lot of history.

Concerning reward points, what should I be looking for?

Dr. Frenchenstein

Whatever works for you. There are Gas rewards, or a lot of stores have rewards cards. Like if you shop at REI Best Buy a lot, they have a card (it's a visa, that you can use anywhere) that gets you gift certificates to there when you accumulate enough points. There are cash back cards, that give you a % of your purchases back. There's all sorts of stuff.

I have one card through BoA which is probably not great. I get points toward their rewards program which i can either use for Gift Cards, or all sorts of crap in their "mall" (the selection is pretty enormous, but until you get a LOT of points, there's nothing really cool to buy).

bowen

Personally, I'd avoid big purchase like that. It's easy to justify spending money you don't have. I got into this situation and it nearly gave me an ulcer with stress after I realized just how far down the rabbit hole I was with medical expenses on top of it.

Get a credit card, use it for gas, pay it off every month. Bonus points if you get one that gives you cash back. The day you miss a monthly payment, put it in a safe and don't use it until you pay off your outstanding balance.

a5ehren

Enc wrote:

Yeah, the plan is to use it to pay off a bill or something each month just to build credit, roundabout but necessary, I guess. I have good credit from my other lines of purchases, (cars and whatnot), but not a lot of history.

Concerning reward points, what should I be looking for?

Apply for the one of these 10 cards that sounds best to you. Another option if you shop a lot at Amazon.com is to get their card - gives you bonus points there and lets you take advantage of their 0% interest offers on big ticket items like TVs.

In general, don't carry a balance unless it's a 0% interest offer like I mentioned. Just pay the bill when you get it every month and you'll be fine.

Creamstout

I currently use a rewards discovercard, 1% cashback on all purchases (after you spend 3k). I use it for gas, grocery shopping, eating out, and I pay the full amount on each statement balance so you don't get hit with the interest. They key is to use it like you would cash, don't ever spend more than you have in the bank. The cashback works for me as I don't fly much and I found the rewards from other cards to be more subjective. Also with this discover card I get cashback rewards at many online retailers.

EggyToast

As others are saying, you should simply use the card "in place of cash," and then pay it when the bill comes in or when it's due. Consider it a handy way to see all of your expenses during the month itemized, without having to use cash or check (or debit).

Enc

EggyToast wrote:

As others are saying, you should simply use the card "in place of cash," and then pay it when the bill comes in or when it's due. Consider it a handy way to see all of your expenses during the month itemized, without having to use cash or check (or debit).

Right, this is the plan. What I'm really needing is suggestions on what cards are best in terms of rewards and not having crappy/shady business dealings with them. I have no intention of raking in credit card debt, as stated in the OP the only reason I need to get one is to secure a mortgage loan in the future.

Disrupter

Yes, using credit cards in place of cash is the best way to handle it. You build credit and will earn points. I seldomly ever use cash because there really isnt a reason to. The only issue is whether or not that line of credit will tempt you to buy something you normally wouldn't/can't afford.

I have a problem where I refuse to touch my savings, so I let 1-2K major purchases (down payment on a new car, wedding etc) sit on my credit card for a few months as I chip away at it. Probably costs me like 200 a year in interest when I could just pull out of savings, pay it off, then slowly re-establish my savings.

I just know ill make a much bigger effort towards paying down my credit card then I would towards putting stuff back into savings.

Turkey

I'm in the same situation as Enc, and the replies here have been very helpful. As a regular Amazon customer I'll be picking up their card ASAP.

I have one question: Do you get hit by interest if you pay the monthly amount, or do you have to pay it all off in the same month?

bowen

What do you mean Turkey? "Monthly" amount could be your outstanding balance or your minimum payment. Paying anything but how much you have outstanding will hit you with interest unless you're on a 0% interest card.

splash

I'm looking at an Amazon.com or REI card rather than the typical credit card. I think that's a much better decision personally, but I guess that may not be enough for a house situation. That sucks.

Man, someone really needs to come up with a way to give credit rating to people who don't care to use credit cards. I've never had a credit card and still don't want to. I pay for auto insurance every 6 months and health insurance every month for years. I've had a savings and checking accounts for many years with steady balances. And that doesn't count for anything. How is that not smarter and more reliable than the average person? :x

admanb

Smart and reliable isn't what creditors look for.

a5ehren

Turkey wrote:

I'm in the same situation as Enc, and the replies here have been very helpful. As a regular Amazon customer I'll be picking up their card ASAP.

I have one question: Do you get hit by interest if you pay the monthly amount, or do you have to pay it all off in the same month?

If you pay the statement balance in full every month before it is due, you will not be charged interest.

If you pay somewhere between the statement balance and the minimum required payment, you will be charged a certain amount of interest (this varies wildly by card...typically 10-20%) on the remaining balance on your next monthly statement.

If you pay less than the minimum, you pay interest on the remaining amount and you pay an extra fee for not making the minimum and your rate gets jacked up in the future (~30%). For many cards, this runs an extra $20-$30.

a5ehren

splash wrote:

I'm looking at an Amazon.com or REI card rather than the typical credit card. I think that's a much better decision personally, but I guess that may not be enough for a house situation. That sucks.

Man, someone really needs to come up with a way to give credit rating to people who don't care to use credit cards. I've never had a credit card and still don't want to. I pay for auto insurance every 6 months and health insurance every month for years. I've had a savings and checking accounts for many years with steady balances. And that doesn't count for anything. How is that not smarter and more reliable than the average person? :x

In the last 4 years, I've made over $1000 from credit card rewards by using it to replace cash and my debit card for daily transactions. If you are as responsible with your finances as it sounds like, there really is no reason to not have a good rewards card.

Jasconius

Enc wrote:

I have somehow gone most of my life without a credit card, mostly because I don't like debt as a thing. However, after speaking with several contacts in the mortgage industry I've been enlightened that If I am to get a loan for a house in a year or two I'll need to demonstrate more lines of credit than my usual bills and car. I'm looking at credit cards, and don't really know what to look for outside of a low interest rate.

H/A, what are your opinions on Credit Cards and where is the best place to get them through? If it is helpful, I live in a large, East Coast US city.

I disagree with the notion that you need credit cards to buy a house. If your income is right and your down payment is right, then you don't need a bunch of credit lines to buy a house.

You're doing it the right way. Don't get credit cards if you don't need them. And don't let some real estate punk tell you that you need them.

Save your money. A savings account is worth more toward buying a house than having a few empty MasterCards is.

a5ehren

That is a somewhat good point - a credit account that you've only had for a year won't help your credit score much. For young people, the most important factor (after not having any defaults or massive unpaid debt, obviously) is the age of your accounts.

If you're worried about checking your score, you can either use a free service like Credit Karma or pay for your real scores from a reputable place like MyFICO. Both will give you advice on things you can do to improve your score (FYI, generally you want to be over 720 to get the best mortgage rates) and if you're looking to get a mortgage next year, those are things you can work on. I would trust their advice over a random bank employee who's never seen your credit file.

Enc

I'm looking two to four years down the line, so this isn't some short term thing. I also know my credit score and will be in my 30s once I am actively looking. The info I have is extremely reliable, from several family members and friends that are considerably high up in the major banks and lending institutions that have no reason to lie to me and every reason to help me get a loan, so I'm not really questioning that part of things. I'm set up to have a substantial down payment, in the range of 20%, by time I am looking to buy a house, but pretty much everyone came back with the "that's probably not going to work by itself in this market" response.

At this point I am going to get a card for this purpose (and I have no intention of doing anything but paying it off each month). What I am looking for here is for suggestions concerning what cards you all think have the best rewards and benefits, now that my APR question was answered. I've seen suggestions about the Amazon card, what else?

TychoCelchuuu

There are no cards with the "best" rewards, just cards that have rewards that you will get more out of. Lots of cards have good airline miles rewards, for example, but if you don't fly much that won't help you. I like my Discover card because it'll often give me 5% cashback on gasoline and groceries, and those are two of my biggest expenses, but if you often eat out or if you buy lots of stuff from big box retailers or from Amazon.com, you'll want a credit card that will give you rewards when you do one of those things. Finally, none of this might matter because you might just be rejected by most cards you apply for, which is what happened with me (first credit card, no credit history) until I was finally approved by someone.

a5ehren

Enc wrote:

At this point I am going to get a card for this purpose (and I have no intention of doing anything but paying it off each month). What I am looking for here is for suggestions concerning what cards you all think have the best rewards and benefits, now that my APR question was answered. I've seen suggestions about the Amazon card, what else?

I have a Chase Freedom card that I have no issues with. They have bonus categories that rotate quarterly that give you 5% cash back, and you get 1% back on everything else. If you spend a lot of money on air travel, one of the travel-focused cards may be better.

If you are a Costco member, the Costco American Express is also a good card - you get 1% cash back on all purchases (even those not at Costco) and the annual fee doubles as your Costco membership fee. I also think they have bonuses for restaurants and Costco purchases, but I'm not sure on that.

Turkey

bowen wrote: »

What do you mean Turkey? "Monthly" amount could be your outstanding balance or your minimum payment. Paying anything but how much you have outstanding will hit you with interest unless you're on a 0% interest card.

I think a5ehren got it. I was confusing normal interest and penalties.

Enc

a5ehren wrote:

Enc wrote:

At this point I am going to get a card for this purpose (and I have no intention of doing anything but paying it off each month). What I am looking for here is for suggestions concerning what cards you all think have the best rewards and benefits, now that my APR question was answered. I've seen suggestions about the Amazon card, what else?

I have a Chase Freedom card that I have no issues with. They have bonus categories that rotate quarterly that give you 5% cash back, and you get 1% back on everything else. If you spend a lot of money on air travel, one of the travel-focused cards may be better.

If you are a Costco member, the Costco American Express is also a good card - you get 1% cash back on all purchases (even those not at Costco) and the annual fee doubles as your Costco membership fee. I also think they have bonuses for restaurants and Costco purchases, but I'm not sure on that.

That's pretty nice! Thanks for the Costco suggestion, I'll look into that.

a5ehren

Enc wrote:

a5ehren wrote:

Enc wrote:

At this point I am going to get a card for this purpose (and I have no intention of doing anything but paying it off each month). What I am looking for here is for suggestions concerning what cards you all think have the best rewards and benefits, now that my APR question was answered. I've seen suggestions about the Amazon card, what else?

I have a Chase Freedom card that I have no issues with. They have bonus categories that rotate quarterly that give you 5% cash back, and you get 1% back on everything else. If you spend a lot of money on air travel, one of the travel-focused cards may be better.

If you are a Costco member, the Costco American Express is also a good card - you get 1% cash back on all purchases (even those not at Costco) and the annual fee doubles as your Costco membership fee. I also think they have bonuses for restaurants and Costco purchases, but I'm not sure on that.

That's pretty nice! Thanks for the Costco suggestion, I'll look into that.

A little more information: You get 3% back on gasoline, 2% at restaurants, 2% on travel, and 1% on everything else (including Costco purchases). The annual fee that most AmEx cards have is waived for as long as you are a Costco member. Overall, it's a pretty good card if you're already a Costco member.

Muriden

The costco amex card is a good choice for cash back and a revolving credit balance. If you want a card with a more general rewards program (gift cards and merchandise etc) Amex also has their charge card line which will all carry an annual fee but won't let you carry a balance at the end of the month. I currently carry their Zync card which carries a $25 annual which I use in place of my debit card specifically because it keeps me in check. I can't overspend for the month because I cannot carry a balance.

http://www304.americanexpress.com/getthecard/learn-about/Zync/36181

Do not sign up for the "packs" as the value you get out of them will very very rarely outweigh the cost.

xThanatoSx

I've got a Capital One Venture card - which is basically the No Hassle Miles card from earlier in the thread. I've had this card for over 10 years now and have never had an issue getting rewards etc. Bonus: It doesn't charge you extra fees if you use it overseas.

EggyToast

As people are starting to point out, there are a lot of cards with good bonuses. It's harder to pick a GOOD card as opposed to avoiding a BAD card, since bad cards tend to yell out why they're bad. However, since you're new, here's what bad cards involve:

Monthly or annual fees
Very short grace periods (the time they send you a bill to when the bill is due)
Pre-paid balances
Pushy for cash advances and other fee-oriented vehicles

Note that the first one is usually what you'll find when simply shopping for a card.

The Amazon card and the REI card are real credit cards -- they are not store cards. Macy's is a store card. You can use your Amazon Card everywhere, and they encourage you to do so. I currently maintain a Discover Card, my Amazon Visa, and my Bank of America credit card (which I mostly keep open due to its age). I use the Amazon Card for Amazon and Gas (and often at restaurants), where I get 2-3% back. I use my Discover Card for most of my day-to-day purchases.

LuvCherie

It sounds like this won't be an issue for you OP, but one thing I learned recently is that you can always request a credit line decrease. This is helpful if you have any concerns about overspending with your credit limit.

Antithesis

If you use software like Quicken or similar finance websites like mint.com, some can recommend several cards based on your info/situation.

(Is it bad for my credit score to pay off my card's balance once per week online as opposed to just waiting to receive my statement in the mail and doing it once a month? I don't like carrying a balance.)

lonelyahava

after having bad bad experiences with credit cards, and finally getting out of the hole, I will say this.

the two cards that I (through my family) have had the best experiences with have been the Amazon.com credit card, and the Exxon/Mobil/Shell/Texaco/Gas company credit card.

the amazon card gets you neat things. and the gas card is really useful in figuring out just how much you're spending on fuel and things. the gas card was the first card that I had when i turned 18.

Alecthar

I actually work for a financial institution as a loan officer, so I wanted to drop in with some stuff:

If your purpose with this card is to build credit, do not cancel it a year from now. Keep it. Keep it forever if you can. Age of the account matters.

Keep a zero balance on the card whenever possible. Credit scores like your FICO and Bankruptcy watch score are partially dependent on the percentage of revolving credit you're utilizing. The lower the percentage (that is, the lower the ratio of your revolving balance to your limit) the better. Even if you are making your monthly payments on time and keeping the card within the limit, having a high revolving balance ratio will damage your credit over time, and perhaps more significantly your Bankruptcy watch score. Many financial institutions use the FICO score to determine the rate of your loan, but also have Bankruptcy score cutoffs for automatic denial, and your revolving balance is harder on your Bankruptcy score than anything else.

Honestly, even if you only have a few previous credit accounts, you might be surprised what your scores are. You might want to look into your FICO score before you open a credit card just for the purpose of building credit. I've seen some very short credit histories with very respectable scores.

Alecthar

Antithesis wrote:

If you use software like Quicken or similar finance websites like mint.com, some can recommend several cards based on your info/situation.

(Is it bad for my credit score to pay off my card's balance once per week online as opposed to just waiting to receive my statement in the mail and doing it once a month? I don't like carrying a balance.)

No, only the age of the account really matters. The lower the balance carried on the card, the better for your score. If the card is on your CBR for a while with zero balance, that's perfect.

a5ehren

Quick heads up for anyone else who may be looking - Chase Freedom is offering $250 cash back if you spend $500 on it in the first 3 months. It's a pretty solid card on top of that, too.

MushroomStick

Antithesis wrote:

(Is it bad for my credit score to pay off my card's balance once per week online as opposed to just waiting to receive my statement in the mail and doing it once a month? I don't like carrying a balance.)

The only thing I can see going wrong with this is that some banks only let you pay bills online for free for the first 10 or so times in a month. After that they want their cut. Beyond that possibility, if it makes you more comfortable, go for it.

Lanchester

I will advise you to actually get 2 credit cards.

I learned that one things that effects your credit rating is your credit to debt ratio. Basically, how much credit you have compared to how much debt you have. So if you only get 1 card that has $2,000 credit limit for example. If you use it and pay it off you will have good credit. However, if you use $500 dollars one month, before you pay it off it will show that you have 25% of your credit filled with debt. (I hope I'm expaining that correctly and in a way that makes sense)

It looks a lot better on your credit report if you have $5,000 of available credit instead of $2,000 of available credit.

edit: My suggestion on the type of card - I would get something like a Southwest credit card, or something that gives you a good bit of miles for every purchase. Then you can treat yourself to a vacation every couple of years with a free flight.

rockmonkey

I will echo Alecthar and Lanchester about the debit to credit ratio. Like they both said, a substantial part is the amount of debit over your available credit. So if you have $800 used of a $1000 available credit limit, regardless of if you pay it off each month then it can HURT. You may pay it off each time, but you don't know when the credit companies look at your accounts, which is a snapshot. Now if you have $800 of $10,000 you're looking much better. I saw someone talk about lowering the creidt limit at any time. This isn't something you always want to do unless you have problems controlling your credit card usage. I carry rather high credit limits and low/no balances.

<I HAD A PARAGRAPH ABOUT MY LIMITS AND INCOME AND WHATNOT BUT DECIDED TO REMOVE IT FOR SAFETY ISSUES>
Lets just say my credit when I bought my first house 1.5 yrs ago was right under 800, partly due to keep card for a long time and having lots of avilable credit and little/no balance.

I have had good experience with my Edward Jones card and my capital one as well. The edward jones has a standard reward points that can be redeemed for lots of stuff through their rewards site, merchandize, airplane mileage points, vacations, and CASH. I opt for cash which if you redeem enough each time translates to 1% back. We redeem for $250 once a year or so on that card. My chase has 1% on everything with upto 5% on certain purchases, which is nice.

Djeet

A lot of the cards suggested are only going to be granted to those with Excellent credit (700/720+) and I doubt someone who has never had revolving credit will have such a credit rating (though I'm not sure). May want to make sure you have any possibility of qualifying (check your scores) before applying as being denied credit will certainly work against you. Check out creditkarma or creditcardoutlaw for card options that might be granted to those of lesser credit rating.

splash

The fuck? So you can be denied credit for not having a credit rating, which then gives you credit rating, which will be a terrible credit rating. I hate this scam.

Good suggestion on the Costco card, sounds good.

Enc

Thanks everyone! This has been very helpful.