Broke-Ass Financial Coaching: The Truth About Credit Cards

While being young, broke and beautiful is all well and good, some people’s finances are more jacked than others.  That’s why we’ve invited Betsy Crouch (aka Coach $izzle) to come onboard and dole out some much needed advice.  She is a professional financial coach after all.  If you’ve got a question you’d like answered please email her atcoachsizzle@brokeassstuart.com.  Maybe your question will be the next one answered.

“I have some store credit cards and one ‘regular’ credit card, should I get an Amex so that I can get points?”  -Sam

To Credit Card or not to Credit Card…

It has been well established that we spend more money when we use a credit card versus a debit card, approximately 12% to 30% more depending on the source.  So just keep this in mind that you may spend more and therefore really pay for those points or miles.  If you are not sure whether you would be disciplined or not, don’t do it, and avoid the headaches.  Set up an automatic savings plan and just save up for the things you want, you may end up with more money in your pocket in the long run.

If you feel like you are disciplined and controlled with your spending, i.e. you have spending limits for certain expenses and you stick to those limits, and you pay your credit card off every month, then I would consider getting a card that does give you points or miles and does not charge an annual fee.  I would not recommend American Express, and Mr. Credit Card agrees.

To help you choose the card that is right for you, check out www.cardtrak.com and www.bankrate.com to search for and compare cards.  Again, do not get one that charges an annual fee.  Also, when it does come time to cash in your points, do the math.  I was looking at one bank’s credit card point system and you could get more $ out of your points by exchanging them for cash versus gift cards.  It costs more points for a $50 Chili’s card versus exchanging fewer points for a $50 CASH card.  Wow.  Just take your cash to chili’s dude.

“Won’t it also help my credit score to have another card?” – Sam

I would recommend getting a clear understanding of how credit scores are calculated before you make a decision to get a credit card to “improve your credit score.”   Fair Isaac Company, aka FICO, has established the credit scoring system that is commonly used.  Scores range from 350 to 850.  These scores communicate your credit worthiness.  So if some guy says, “I love you, will you co-sign for my car?”  and you say, “I love you too, what is your credit score?”  He says, “425.”  Then you say “no, honey, I’ll buy you a fast pass (or other monthly public transportation pass in your area).” Or you can very likely kiss your credit score goodbye.

Correct errors:

The first thing you want to do to improve your score is check your report for errors.  Almost all credit reports have errors on them.  So order your credit report from www.myfico.com and follow the instructions to correct errors.  They offer a pretty sweet service to help facilitate fixing errors.

For those of you who say, “I don’t think I have any credit!”  Well here are some tips to help you establish your credit.

Pay your bills on time:

35% of your score is based on how you pay your bills.  Some jackwad realtor guy would not rent “someone I know” an apartment in Visitacion Valley over a year ago, even though “their” credit score was 777, because “they” had one late payment of over 30 days in November of 2002.  What a douche that guy was.. I heard.  “Why did you pay that late?” he asked.  Seriously?!  Up yours.  This is not typical and I don’t want this to scare you, but it is a funny story about a totally unprofessional guy, I could write a whole piece on his silliness, maybe one day I will.

How are credit scores calculated?

1. How you pay your bills (35 percent of the score)

2. Amount of money you owe and the amount of available credit (30 percent)

3. Length of credit history (15 percent)

4. Mix of credit (10 percent)

5. New credit applications (10 percent)

This bankrate.com article explains credit scores in detail as well as details about each of the key factors that effect your score.

Wishing you happy high credit scores, and lots of credit card points,  Coach $izzle.

Comments?  Questions? coachsizzle@brokeassstuart.com