Using a credit card to keep credit score

jlaOK · May 2014

Hello. I often lurk here but never post so I hope it's okay to ask a question.

DH and I are planning on selling our house and building a house (and living in an apartment in between). We have no debt besides our current home and have been advised by a potential mortgage lender that we should get a credit card because our current high credit could lower once we sell our house and have no debt. We aren't opposed to this as we want to qualify for the best loan. Will getting a credit card and using it just for gas (approx $300/month) be enough to maintain our credit scores?

brij2006 · May 2014

Since you are debt free, I will give you what Dave Ramsey's advise is in your situation. Save up for the 20% down payment or more on your new house. Do not open a credit card to get a credit score. When you go to get a mortgage, work with a lender who does manual underwriting. They will see that you have zero debt, good income, and do not need PMI because of your down payment. Your credit score will speak little in your situation.

jlaOK · May 2014

brij2006 said:

Since you are debt free, I will give you what Dave Ramsey's advise is in your situation. Save up for the 20% down payment or more on your new house. Do not open a credit card to get a credit score. When you go to get a mortgage, work with a lender who does manual underwriting. They will see that you have zero debt, good income, and do not need PMI because of your down payment. Your credit score will speak little in your situation.

Thank you for the response. We have followed Dave's plan (hence being debt free) but will only have 10-15% to put down. Because we won't have the full 20% we're not sure if manual underwriting will work for us.

hoffse · May 2014

AprilH81 said:

I like a lot of what Dave Ramsey says, but credit cards are not always a bad thing. DH and I have several and we have one card that we put EVERYTHING on. We pay it off in full every month.

For those who have some self control and discipline credit cards offer a lot of consumer protection against theft and fraud that cash and ATM cards just don't provide.

Personally, if you know that you will pay the card off in full when it is due I see no problem with having a credit card to maintain a good credit score.

This. Times 100.

Also keep in mind that your credit score depends in part on the "blend" of credit your have. Term loans (mortgages/car loans) are different than revolving loans (credit cards). Lenders generally like to see that you can handle both kinds of loans. If you have a credit card and pay it off in full each month, your credit score should go up eventually because you will have a better blend of credit than somebody with no revolving loan/credit history.

Obviously you shouldn't open a credit card if you have a history of credit card abuse in the past. The credit score bump will not be nearly enough to run the risk of falling into patterns of credit card abuse again.

However, if you do not have a history of abusing credit cards, and you do not increase your spending once you switch over to credit cards, then credit cards are enormously beneficial for many reasons. April is correct that consumer protection laws are strongest when using a credit card. They also provide a buffer between your bank account and the vendor, whereas a debit card provides direct access. Finally, you can actually make money off of them by working credit card points. H and I have earned about $450 in credit card points since January.

brij2006 · May 2014

jlaOK said:

brij2006 said:

Since you are debt free, I will give you what Dave Ramsey's advise is in your situation. Save up for the 20% down payment or more on your new house. Do not open a credit card to get a credit score. When you go to get a mortgage, work with a lender who does manual underwriting. They will see that you have zero debt, good income, and do not need PMI because of your down payment. Your credit score will speak little in your situation.

Thank you for the response. We have followed Dave's plan (hence being debt free) but will only have 10-15% to put down. Because we won't have the full 20% we're not sure if manual underwriting will work for us.

You can still do the manual underwriting with less than 20% down. They just take into account all aspects of your debt free life when making the decision to give you the loan. To where a bank that does not do manual underwriting will just look at your debt to income ratio (which yours would be great) and credit score.

Mom987 · May 2014

I don't think credit cards are so bad either. We use ours for our everyday spending and pay it off weekly.

mana8503 · May 2014

We use a rewards card like you are wanting to. We put gas on it and pay it off monthly. Points gets saved and I cash them in for gift cards for christmas. Free money if you ask me.

We do it for rewards and to help H's credit score showing he can handle revolving debt.

cbee817 · May 2014

We use credit cards for everything- the balances are paid in full every month. We get a ton of reward points for gift cards (citicards), 1.5% cash back (capital one), free shipping, discounts, free alterations, and rewards (banana republic luxe but can be used at gap and ON), and 5% off all purchases (target). As long as you properly manage your expenses and pay them off monthly, credit cards can give you a lot of extra perks.

athlete010688 · May 2014

We use the Chase Freedom card for everything to get points. I am routinely getting $30-$50 cash per month. Right now, I've been redeeming the cash to pay extra on H's car.

strickland8052 · May 2014

I second the Chase Freedom card. I think they give you something like $250 just for opening the card, and I make about $500 a year with cash back points. Use the card to pay for EVERYTHING that you normally buy (gas, groceries, bills, etc.) then pay it back in full every month. It has no annual fee. It will boost your credit score and give you money. Win-win. Credit cards are not bad at all, just as long as you don't get into the mind set of "Wooh!! I got a credit card, I can buy what I want now!" I think of my credit card as a debit card that just gives me extra money each year in points.

formerlyGDaisy09 · May 2014

We use credit cards for everything we can. we live within our budget and pay them off every month. H has some history of CC abuse, so I "own" the credit cards and he is a user on one of my accounts, this was the only way he felt comfortable using a credit card because he knows I am monitoring it and that keeps him from abusing it.

credit cards are not evil when used smartly.

AlbanyBride33 · May 2014

hoffse said:

AprilH81 said:

I like a lot of what Dave Ramsey says, but credit cards are not always a bad thing. DH and I have several and we have one card that we put EVERYTHING on. We pay it off in full every month.

For those who have some self control and discipline credit cards offer a lot of consumer protection against theft and fraud that cash and ATM cards just don't provide.

Personally, if you know that you will pay the card off in full when it is due I see no problem with having a credit card to maintain a good credit score.

This. Times 100.

Also keep in mind that your credit score depends in part on the "blend" of credit your have. Term loans (mortgages/car loans) are different than revolving loans (credit cards). Lenders generally like to see that you can handle both kinds of loans. If you have a credit card and pay it off in full each month, your credit score should go up eventually because you will have a better blend of credit than somebody with no revolving loan/credit history.

Obviously you shouldn't open a credit card if you have a history of credit card abuse in the past. The credit score bump will not be nearly enough to run the risk of falling into patterns of credit card abuse again.

However, if you do not have a history of abusing credit cards, and you do not increase your spending once you switch over to credit cards, then credit cards are enormously beneficial for many reasons. April is correct that consumer protection laws are strongest when using a credit card. They also provide a buffer between your bank account and the vendor, whereas a debIfit card provides direct access. Finally, you can actually make money off of them by working credit card points. H and I have earned about $450 in credit card points since January.

I second this!

As long as you are smart about it, I think it's a good idea. I'm also a Dave Ramsey fan but differ with him on this. We put necessary expenses on there (groceries, gas, Dr bills, etc.) pretty much everything we know we have to pay each month. Then we pay it off every month.

As someone who will be new to credit cards, I wouldn't recommend putting all your expenses on there right away. Just ease into it and when you're confident in your spending restraints, then you can do that. The important thing is to be smart about it. If you're using a debit card already, your spending mentality shouldn't change, but the bonus with the cc is that you can accumulate rewards from it and as pp stated, the consumer protections are way better. If someone steals your debit card and makes a purchase, that's a lot more difficult to fix than it is on a credit card.

brij2006 · May 2014

AlbanyBride33 said:

hoffse said:

AprilH81 said:

I like a lot of what Dave Ramsey says, but credit cards are not always a bad thing. DH and I have several and we have one card that we put EVERYTHING on. We pay it off in full every month.

For those who have some self control and discipline credit cards offer a lot of consumer protection against theft and fraud that cash and ATM cards just don't provide.

Personally, if you know that you will pay the card off in full when it is due I see no problem with having a credit card to maintain a good credit score.

This. Times 100.

Also keep in mind that your credit score depends in part on the "blend" of credit your have. Term loans (mortgages/car loans) are different than revolving loans (credit cards). Lenders generally like to see that you can handle both kinds of loans. If you have a credit card and pay it off in full each month, your credit score should go up eventually because you will have a better blend of credit than somebody with no revolving loan/credit history.

Obviously you shouldn't open a credit card if you have a history of credit card abuse in the past. The credit score bump will not be nearly enough to run the risk of falling into patterns of credit card abuse again.

However, if you do not have a history of abusing credit cards, and you do not increase your spending once you switch over to credit cards, then credit cards are enormously beneficial for many reasons. April is correct that consumer protection laws are strongest when using a credit card. They also provide a buffer between your bank account and the vendor, whereas a debIfit card provides direct access. Finally, you can actually make money off of them by working credit card points. H and I have earned about $450 in credit card points since January.

I second this! As long as you are smart about it, I think it's a good idea. I'm also a Dave Ramsey fan but differ with him on this. We put necessary expenses on there (groceries, gas, Dr bills, etc.) pretty much everything we know we have to pay each month. Then we pay it off every month.

As someone who will be new to credit cards, I wouldn't recommend putting all your expenses on there right away. Just ease into it and when you're confident in your spending restraints, then you can do that. The important thing is to be smart about it. If you're using a debit card already, your spending mentality shouldn't change, but the bonus with the cc is that you can accumulate rewards from it and as pp stated, the consumer protections are way better. If someone steals your debit card and makes a purchase, that's a lot more difficult to fix than it is on a credit card.

******STUCK IN THE BOX******

DR's point the anti credit card thing is that there's an emotional attachment to your money. When you pay with cash or use your debt card, there's a little sting to it. You have to know exactly how much is in your checking at that time to swipe the card and will consciously keep yourself on budget.
With a credit card there isn't as much of a conscious decision of whether or not you're spending too much. It hurts less to swipe it because it isn't coming straight out of your account. There's a 30 day buffer in there instead.

We're ones who used our CC's for every single purchase. The debit card only got used at the ATM. We decided to follow DR's plan 100% instead of just bits and pieces and doing a "modified" version of it. Trust me, the hardest thing for me to do was to pull my cards out of my purse and no longer get the points from using it. However, I have noticed a significant difference in our spending. I even got to the point with our groceries that I've turned to cash because it was too easy for me to go over budget with the debit card.

Again, there's a lot of mental to his plan. If you follow it entirely, there are great rewards that are much larger than an extra $200/year in credit card points.

hoffse · May 2014

Brij, I can see that. I guess for me, I tend to spend MORE money when it's cash. I've tried it both ways. I check my credit card statements every single day because I'm paranoid about fraudulent charges, but I just fritter money away when it's a cash-based system. I'm not sure why, but I have a much harder time keeping track of it when I can't see the charges laid out before me online.

And then the day a guy literally grabbed my entire purse and ran with it (midtown Atlanta), I was really glad that I use credit cards. I got all my cards cancelled and reissued within an hour, and I lost a whopping $0.17 in change. I was holding my cell phone, so literally the most expensive thing I lost was the bag itself. After that experience, I'll never carry more than $20 in my wallet.

brij2006 · May 2014

hoffse said:

Brij, I can see that. I guess for me, I tend to spend MORE money when it's cash. I've tried it both ways. I check my credit card statements every single day because I'm paranoid about fraudulent charges, but I just fritter money away when it's a cash-based system. I'm not sure why, but I have a much harder time keeping track of it when I can't see the charges laid out before me online.

And then the day a guy literally grabbed my entire purse and ran with it (midtown Atlanta), I was really glad that I use credit cards. I got all my cards cancelled and reissued within an hour, and I lost a whopping $0.17 in change. I was holding my cell phone, so literally the most expensive thing I lost was the bag itself. After that experience, I'll never carry more than $20 in my wallet.

I am definitely that way. I can't have anything in my wallet or I will spend it on random things. The only part of the budget we do in cash is groceries, and I pull out the cash every week from the ATM before going to the store. So max I have in my purse is whatever I didn't spend from the weekly allotment (last week was $20 that carried over to this week).

We've both also had our identity stolen, and our bank was amazing with it. We had new cards within 2 business days (by mail, or we could've stopped at the bank and grabbed them that day) and they reimbursed every charge the minute they noticed it (they called us before we even noticed we got hacked). No lock on our bank account or not accessing our money. The Visa and MC companies cover fraudulent charges on debit cards the same way they do on credit cards.

Xstatic3333 · May 2014

brij2006 said:

hoffse said:

Brij, I can see that. I guess for me, I tend to spend MORE money when it's cash. I've tried it both ways. I check my credit card statements every single day because I'm paranoid about fraudulent charges, but I just fritter money away when it's a cash-based system. I'm not sure why, but I have a much harder time keeping track of it when I can't see the charges laid out before me online.

And then the day a guy literally grabbed my entire purse and ran with it (midtown Atlanta), I was really glad that I use credit cards. I got all my cards cancelled and reissued within an hour, and I lost a whopping $0.17 in change. I was holding my cell phone, so literally the most expensive thing I lost was the bag itself. After that experience, I'll never carry more than $20 in my wallet.

I am definitely that way. I can't have anything in my wallet or I will spend it on random things. The only part of the budget we do in cash is groceries, and I pull out the cash every week from the ATM before going to the store. So max I have in my purse is whatever I didn't spend from the weekly allotment (last week was $20 that carried over to this week).

We've both also had our identity stolen, and our bank was amazing with it. We had new cards within 2 business days (by mail, or we could've stopped at the bank and grabbed them that day) and they reimbursed every charge the minute they noticed it (they called us before we even noticed we got hacked). No lock on our bank account or not accessing our money. The Visa and MC companies cover fraudulent charges on debit cards the same way they do on credit cards.

I feel the same way with cash! With CC purchases, I know I'll have to look at each charge when I log in later. Bad charges shame me. With cash, I'm like "Woo! Cash! Let's get lattes!" Yet another one of those "what works for you" situations

strickland8052 · May 2014

I'm like "Woo! Cash! Let's get lattes!" - This is me too. LOL

Using a credit card to keep credit score

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