As I got older, I (finally) started to practice the advice my dad gave me when I was too dumb to appreciate it. This came after I climbed out of the financial hole I'd dug for myself by misusing credit. After suffering through those problems, I avoided credit cards. To me, those plastic little rectangles might as well have been the mysterious puzzle box from Hellraiser. If I played with them, chains with sharp hooks would shoot out from the card and sink into my doughy flesh. Then, the Cennobites would come for me. Pinhead leading the way, saying, "Your suffering will be legendary."
So, needless to say, I haven't had credit in years. Probably close to two decades, actually. Last I checked, my credit score was somewhere in the 400s, and that was several years ago. Throw in a nasty divorce where I lost my house (ex-wife was ordered to pay the mortgage payment and didn't. She pocketed the money instead and moved with my children to another state, allowing the house to go into foreclosure), and you can see why my credit was in the crapper.
As I worked to save and become financially responsible, there were a couple of hiccups along the way. When my (new) wife and I would go on vacation out of state, I'd rent a car to drive. If you've rented a car recently, you'll know that they either want cash up-front or they like to put the rental cost on a credit card until the car is returned. Well, I reserved the rental with cash. However, when we showed up to get it, they didn't have one in the same class as I had reserved. The manager upgraded us to the next higher class and then started in on his insurance spiel.
I usually never get the extra insurance. This time, though, we were driving out to Colorado, then to upstate New York. I just knew if I didn't have the insurance, some idiot would run into us (or something). So, I sprung for it. In order to get the insurance, I needed a credit card. I tried using my debit card, but that wasn't acceptable. We had to use one of my wife's credit cards. Luckily, it wasn't charged. Instead, the manager charged my debit card when we returned like we had agreed, but just the fact that he couldn't use a debit in the interim was a crock of shit. Actually, I think it's a scam rental agencies have with the banks; they're co-conspirators!
If my wife hadn't been there, I would have been SOL. This got me thinking about being at the mercy of others.
Advantages of having/using credit
So, I started reconsidering my view about having credit cards. After all, I was older, wiser; I wouldn't allow myself to fall into the same traps I did when I was a carefree twenty-something. I went online and applied for a card with low interest. As it turned out, I was still a little naive because no one's going to give someone with bad credit (or, in my case at the time, no credit--it had been twenty years since I last had any credit) a card with a low interest rate.
However, I did qualify for a secured credit card, which is a card where the credit limit is based on the value of a CD. You determine your limit and buy a CD for that amount. They're basically for helping people establish credit. I guess the creditor's thinking is that if you refuse to pay, they'll recoup the credit limit by taking the CD and any interest it's accrued; better than nothing anyway. Still, the interest rate is a horrible 19%+. But, I got the card. I vowed I wouldn't pay a dime of interest, and so far I haven't. I only charge $150 or less each month on it and make sure to pay the balance in full at or before the billing date.
It's felt good to be able to go buy some groceries or a tank of gas before payday when my account is low. Paying it off feels even better. I'm responsible and know that I'm sticking it to the man by not having to pay them any interest. I wouldn't consider this a big advantage of having a credit card, though.
The bigger advantages are re-establishing my credit so I can increase my credit score, which will help me get better interest rates in the future if I ever need a loan (I'm thinking about a mortgage here, not really anything else, but if push came to shove, I'd be in a better position). I checked my credit score just this weekend and it was 647. That's still pretty bad, but hey, it's a helluva lot better than being in the 400s! It'll only go up if I stick to my regimen. I plan to get it as high as I can without taking out any major loans or doing anything that's not advantageous to reaching FI.
Also, I won't be hassled about credit the next time I need to rent a car. Also, there is the added benefit that, if someone were to get access to my card number and charge something fraudulently, I can dispute it with the bank and the bank will go after the money. If this were to happen with my debit card, it would be my responsibility to go after the money. Although I've had this happen and have gotten my money back relatively easy, I'd still prefer the bank going after the money instead of me. They've got a lot more clout and resources in that area.
Disadvantages of having/using credit
Currently, one of the shitty things about my secured credit card is the annual fee. I noticed a $35 charge appear shortly after I got it and had to read through the fine-print documents that came with it to see that I agreed to the fee without realizing it.
Another thing is all the paper with fine-print that accompanies these cards. When it comes to money, I usually read everything, but c'mon! Even an attorney who had to read all that legalese would go insane.
If, for some reason, I ran up my bill and couldn't pay, my current interest rate would quickly become problematic. So, staying on top of my payments is crucial. I never received credit card offers within the past few years because, I assume, I'd fallen off the credit reporting spectrum. Now that I'm using credit again, I received an offer for a new card that doesn't have an annual fee. The bad thing is the credit limit is $300, whereas I have $400 with my current card and the interest rate is much higher on the new card. It's around 24%...Ouch! If you miss a payment, that's like a payday loan.
It came with a lot more fine-print documentation, too. I sat and read it all this time, just to see what gotchas and possible advantages might be in there. In the end, I applied for the card online and was approved. It should be here in a few days. I figure it won't hurt to have it to put (very) small charges on that I can (again) pay off at the end of the month. There's no way I plan to pay any interest on that card!
The main disadvantage with credit cards is not paying attention to making the payments on time. As long as you pay off the balance at the end of the month, you should be fine. Let it slip, though, and it's a quick slide into a financial hole that, depending on the interest and penalties, can be difficult to get out of.
No comments:
Post a Comment