Tag: credit

Credit in the Straight World: A Credit Card Journey Update

Raise your hand if you’ve been spending too much money lately!

This inflation is really starting to weigh on my bank account, but I can’t even imagine how much worse it would be if I didn’t have my credit card. When I first opened my account with Discover back in January, I was nervous about having a credit card because of the possibility to spend without the money being instantly taken away from me. It’s too much power and responsibility! I have enough things to worry about! Like staying alive!

But after a few months, I realized how superior it was to use my credit card for practically everything. When I got my first cash-back bonus, I was thrilled to have some free money! So far I’ve just used my cash back to pay off my credit card, but soon I hope to save it up and use it for more exciting things (there may be a juicy Sephora gift card in my future).

I also shifted most of the pay-later options I use—like Klarna and PayPal Pay in 4—from my debit card to my credit card. This way, it’s like double credit (I know, my head exploded just thinking about it) and I don’t have to do any math in my head when I get an email alerting me about one of my four payments coming up. I know that my Discover card has it covered, and that my bank account will thank me for the break.

Since I’m roughly six months into my credit card journey, I wanted to revisit some of the personal finance books I’ve been reading to recenter my thinking. In Bola Sokunbi’s “Clever Girl Finance,” she discusses cash-back and rewards credit cards, and her advice comes with a warning: “The thing about cashback and rewards credit cards is that, while they are a perk for the cardholder, they are also a strategy that credit card companies use to get their cardholders to spend more money. If you are motivated by an incentive like cashback, you are more likely to shift your focus to wanting to obtain as much of the incentive as possible, which can lead to overspending, especially on low-cost items. This strategy is beneficial to credit card companies because it allows them to make money from interest accrued on credit card balances you can’t pay off.”

The good news is that I won’t be tricked by credit card companies into spending more money; the bad news is that inflation has already done that for me!

The discussion of rewards credit cards got me thinking: Since I’ll be traveling on an airplane tomorrow for the first time since 2020, should I get one of those credit cards that gives me miles?

Sokunbi’s “Take Action” section at the end of her credit card manifesto says the following: “1. Be sure to find the right type of card with a reward that suits your lifestyle. For example, if you travel a lot, a rewards card with miles or travel upgrades might be a great option for you. 2. Be aware of the timeline and expiration around which your rewards or cashback can be redeemed. Use the rewards within that timeframe so you don’t miss out. 3. Avoid carrying a balance on these cards and be mindful of your spending when you use them. Always defer to your budget to make sure you are staying on track.”

Thankfully, I’ve got these three things covered with my Discover card: The cash-back rewards are working for me, I know that I’ll be getting my cash back matched by Discover at the end of the year and I’m avoiding carrying a balance on it like the plague.

However, I think I’ll pass on getting a second credit card for now. I’ll see if it becomes worth it to get a card with miles as I hesitantly start traveling again.

How I Raised My Credit Score in 2021

When I first started my job at AAII back in 2017, I wanted to buy a new work wardrobe and my mom took us to Macy’s. She said, “If you get a Macy’s credit card, then you can get all of your clothes here and not have to pay for everything at once.” When I checked out with my new clothes, the cashier opened a Macy’s credit card for me. I had to talk on the phone to some guy who asked me for my Social Security number, my date of birth and my address, among other invasive questions. It felt a bit like an airport interrogation (one time when I had just turned 18, I left my government ID behind and had to tell someone the last names of my neighbors—I never forgot it again!), but after about 10 minutes I had my very first credit card.

I used my fancy new Macy’s credit card whenever I bought things from Macy’s, and then when I moved out on my own in 2018, I opened a credit card with Wayfair so that I could put all of my new furniture on the card and pay it off over time. Thankfully, I was able to pay off my store credit cards without incurring interest, and the Wayfair card allowed me to not pay interest for up to 24 months (the number of months varies depending on how much you spend). I paid everything in full within the year.

However, I’ve never had a proper credit card from a bank. I use my debit card for almost all of my purchases. Why? To be honest, credit cards—and credit in general—scare me!

First of all, what is credit? Credit gives you the ability to borrow money and pay it back later. But I like to see exactly where my money is going, and not be surprised by how much I’ve spent at the end of the month when it’s time to pay the bill. With my debit card, I see exactly what my purchases are and can budget accordingly. But with a credit card, my brain goes all theoretical and then I have to do math and that’s not a fun time! (I recently learned that I could pay off a credit card throughout the month if I want, instead of waiting until my statement arrives, which makes me feel infinitely better!)

Now, whenever I buy something online and a website offers Afterpay, Klarna, PayPal Pay in 4 or Sezzle, I choose it. Not only does this make my bank account happy, since I don’t have to spend all my money at once, it has also raised and maintained my credit score for the last year and a half! Most of these companies that allow you to pay later also don’t charge you interest if you pay within a certain period of time, meaning that you will still be spending the same amount of money whether you pay for it all when you buy it or stretch it out over four or more payments. Most of these pay-later options take your money automatically, but make sure that you pay these installments on time, or else you’ll get pounded with late fees!

I’ve gotten my credit score to a good place (700+), which helped me to be approved for my apartment and will further help me to be approved for an actual bank credit card.

I primarily use Credit Karma to check my credit score, but it also includes offers for credit cards and shows how likely I am to be approved for different cards. After doing some research, it looks like the “Discover it” credit card is a great option for me. There are no annual fees, I can use it at Woodman’s (and buy infinite amounts of cheese!) and I can get 5% cash back on groceries, restaurant meals and more. (AAII worked with Discover to get you some other sweet deals here.)

Signing up for a credit card was super easy, but if my credit score had been lower and I hadn’t done anything to raise it over the last year, it would have been harder to find a credit card that I could get approved for. I’ll keep you all updated on how my credit card journey continues—I’m still freaked out by the possibility and the power!