How I Think About Credit Cards

I was watching TV with my older daughter last week when a commercial came on for some credit card debt management app.  She turned to me and asked whether I use the app, and I looked at her like she had three heads and said “No, of course not!”  She looked thoroughly perplexed and said, “But mom, I see you using your credit card every day,” and I suddenly realized that despite being somewhat of a financial expert, I had failed to teach this very basic point to my children!

Ahhh…I explained to her.  And now I will explain to you, how I view credit cards.  I recognize and acknowledge that this is coming from a place of privilege and that some people get in over their heads before they know any better, but from my perspective, this is how credit cards SHOULD be used whenever possible.

I use credit cards ONLY for my own convenience.  I use them when I don’t want to carry around cash or checks (ughhh – I really hate checks), and when I want slightly more flexibility than a debit card.  I also am a VERY enthusiastic player of the miles and points game.  I highly recommend blogs like The Points Guy (start with their beginner’s guide if this is a new arena for you).

In most cases, it can be a good idea to add a responsible teenager as an authorized user to a parent’s credit card around age 18 (often when they are driving independently or heading off to college). Do this only if you pay your bills in full and on time.

Why is this good?

1. Your teen will have a card they can use in case of emergency.
2. You can set guidelines that help teach them money skills for life.
3. They will begin to practice and build skills around how to responsibly use a credit card.
4. They will begin to establish their own credit history.
5. You can earn rewards for their spending.

What can go wrong?

1. If they are irresponsible, you will be financially accountable.
2. Some cards don’t allow different limits for each cardholder (I like giving teens American Express cards for this reason).
3. If you are irresponsible, you can damage their credit history.

In our house, we had the girls start with a debit card first and then earn their way up to the privilege of a credit card.

Bold Vision’s 10 Commandments of Credit Card Usage

1. Only buy things on credit that you can afford to pay for in full.
2. When in doubt, wait it out.  If you think you want to buy something, but you’re not sure: sleep on it.
3. All credit cards should have rewards.
4. Pay in full, every month, 2 days before the payment is due.
5. Be thoughtful about which cards you open and close.
6. Only affluent travel-loving folks should have premium cards (defining premium as an annual fee >$100), and then only if you are diligent about using the perks (typically things like reimbursement for Global Entry, fee and promotional credits, and lounge access).
7. Have at least one card without foreign transaction fees if you travel globally.
8. Set up text alerts to ensure you are never accidentally late with a payment.
9. Freeze your credit (to make it harder for thieves to open or access accounts in your name).
10. Make sure you have at least one card in your own name (if you are married – make sure at least one is separate from your spouse).  This is good for emergencies and as an overall hedge.