Who uses credit cards?

[juvanya]

I am considering the future of buying a home in a city (that is necessary for my short to medium term needs), and the only way to do that really is working very hard, striking it rich somehow, or with a mortgage. Consequently, Ive been thinking about the loan it would take to get that mortgage and how nowadays you need massive debt to do anything, even if you could reasonably pay for it in a normal market. So, I have begun to think again of getting a credit card. I know I can keep on top of it, but I have always been uncomfortable with being tracked. I use cash as much as possible. On the other hand, its the best way to build up that precious credit rating. Its like we are all sprites in a game and we need to get XP and level up. How ridiculous.

In any case, who has a credit card? Should libertarians be involved in that? What other ways might there be to purchase a home in a city?

Heck, even homesteading in the country has a high cost. And I have no interest in moving out west to where it might be reasonably cheap.

 

[JK/SEA]

i worked my ass off when i was younger, Played the 'game', got a few credit cards to 'establish' a credit history, paid them on time, got a home loan, then tossed my credit cards into a bonfire. Now i'm retired with a private pension, and own a house.

good luck.

 

[Ronin Truth]

Who doesn't?

 

[sam1952]

I've advocated using cash on this site in many threads and I use cash as much as possible. That said there is a place for credit cards whether tracking purchases for business or budget. They also become a valuable tool in the credit game.

You can't rent a car, book a hotel room or purchase online without one. Yes you can pay cash for a hotel room but to book and reserve one you need a card (Not sure if they take debit cards as I don't have one). Credit score is used a lot today in this fast paced loan approval world.

Remember they are a tool. Not free money

 

[Suzanimal]

I've advocated using cash on this site in many threads and I use cash as much as possible. That said there is a place for credit cards whether tracking purchases for business or budget. They also become a valuable tool in the credit game.

You can't rent a car, book a hotel room or purchase online without one. Yes you can pay cash for a hotel room but to book and reserve one you need a card (Not sure if they take debit cards as I don't have one). Credit score is used a lot today in this fast paced loan approval world.

Remember they are a tool. Not free money

You can book hotel rooms with a debit card but I prefer to use credit cards. You're correct they're just a tool.

 

[Ronin Truth]

i worked my ass off when i was younger, Played the 'game', got a few credit cards to 'establish' a credit history, paid them on time, got a home loan, then tossed my credit cards into a bonfire. Now i'm retired with a private pension, and own a house.

good luck.

 

[timosman]

Even if you "buy" a house, you still need to pay for the privilege of living in it. The property tax is usually over 1% of the value per annum. Check your county tax regulations.

 

[sam1952]

You can book hotel rooms with a debit card but I prefer to use credit cards. You're correct they're just a tool.

Thank you for letting me know that. I have resisted a debit card and never activate them and cut them up. I don't understand why banks insist on getting a debit card to even open some accounts

 

[timosman]

Thank you for letting me know that. I have resisted a debit card and never activate them and cut them up. I don't understand why banks insist on getting a debit card to even open some accounts

The debit cards the banks are pushing on us are dual purpose. The smart thing to do is request a debit card which can not be used as a credit card. This way you have all the benefits without almost any risks.

 

[JK/SEA]

a debit card just replaces writing a check. No money in your account, you can't buy anything unless its cash. I use both.

credit cards are the devils tool. Use them wisely if you feel inclined to pay high interest rates.

 

[Jamesiv1]

I am considering the future of buying a home in a city (that is necessary for my short to medium term needs), and the only way to do that really is working very hard, striking it rich somehow, or with a mortgage. Consequently, Ive been thinking about the loan it would take to get that mortgage and how nowadays you need massive debt to do anything, even if you could reasonably pay for it in a normal market. So, I have begun to think again of getting a credit card. I know I can keep on top of it, but I have always been uncomfortable with being tracked. I use cash as much as possible. On the other hand, its the best way to build up that precious credit rating. Its like we are all sprites in a game and we need to get XP and level up. How ridiculous.

In any case, who has a credit card? Should libertarians be involved in that? What other ways might there be to purchase a home in a city?

Heck, even homesteading in the country has a high cost. And I have no interest in moving out west to where it might be reasonably cheap.

Avoid credit cards at all cost. Instead, do what our grandparents did - save up to buy stuff.

I'm taking the Dave Ramsey "Financial Peace" class and it's awesome. It will totally change the way you look at credit and debt.

A few things I've learned:

1. your FICO score (credit rating) has absolutely nothing to do with your financial well-being. It is your "I love debt!" score. It reveals how much you are inclined to take on debt, and how dependably you make your payments (so those issuing the loan can make money). If you inherit a million dollars tomorrow, it won't affect your FICO score a bit.
2. You don't need a credit card to rent a car or book a hotel room. Debit cards work fine.
3. The best and quickest way to build wealth is with income, not investments. The only way you can do that is to avoid debt like the plague.
4. New cars lose 20% or more of their value the minute you drive off the lot, and up to 70% of their value in the first 4 years. On a $28,000 car that's like throwing a $100 dollar bill out the window every week.
5. The word for interest on a loan in Islam is "riba" and it is forbidden in Islamic banking - for good reason. The Catholic church also forbade usury (another word for exorbitant interest) up until a couple hundred years ago until guess what - the Vatican got some new bankers.

My advice is: Be Debt-Free and read up on how compound interest impacts savings. You sound young... if you start putting money away while still young and leave it there, you will retire a millionaire.

 

[angelatc]

In any case, who has a credit card? Should libertarians be involved in that? What other ways might there be to purchase a home in a city?

.

If you travel, having a credit card makes it much easier to rent a car. If you are away from home, renting with a debit card can be practically impossible especially if your FICO store is low. I am currently employed in the travel industry, and the job has made me rethink the wisdom of not having a credit card available for emergencies.

As for buying a house, buy an income producing property. Buy a duplex and let your tenants pay your mortgage.

 

[Zippyjuan]

Even if you "buy" a house, you still need to pay for the privilege of living in it. The property tax is usually over 1% of the value per annum. Check your county tax regulations.

Renting includes all the costs of buying- plus a profit you pay to your landlord. Buying and you get to keep their share. Once paid off, the mortgage part goes away- saving thousands of dollars for you. Rent and you don't get that savings. You also get to use part of your interest paid to reduce your income taxes.

Debit cards don't usually help improve your credit rating so won't increase your odds of getting a loan (or a better rate on one). If you do get a credit card, make sure it has no annual fee and pay the bills on time so you don't pay any interest. Then it is free for you to use.

http://www.ecredable.com/education-center/credit/how-do-debit-cards-affect-my-credit

How Do Debit Cards Affect My Credit?

Debit cards do not appear on your credit history or affect your credit score. When you use a debit card, the money is immediately taken out of your banking account. You are not borrowing money like you would with a credit card. Unlike with a credit card, you don’t get a bill at the end of the month for your debit card, just an itemized statement.
The flipside to this is that if you only use your debit card to pay your bills (car payment, rent, mortgage, credit cards), you’re not building up a credit history or improving your credit score. The only positive thing you are doing is keeping yourself from going into debt.

Most prepaid debit cards don’t affect your credit history or score either. These “stored value cards” allow you to put money on them in a variety of ways: by direct-depositing your paycheck, by sending in a different check or by going to a MoneyGram location. Because you’re not borrowing money from anyone but yourself and you don’t have to pay it back in a timely matter, credit bureaus are not interested in your prepaid debit card use.

Some prepaid debit card companies claim they will report your history to the credit bureaus, but this won’t affect your traditional credit score in the same way that credit cards can. If you do find a prepaid debit card that reports your history, know that it will show a record of your payments but this type of report won’t impact your credit score.

 

[helmuth_hubener]

I am considering the future of buying a home in a city (that is necessary for my short to medium term needs), and the only way to do that really is working very hard, striking it rich somehow, or with a mortgage.

I disagree. That is trapping yourself in a defeatist attitude. Luckily, it sounds like you are open to disagreement, because you wrote:

What other ways might there be to purchase a home in a city?

You could buy a mobile home.

How handy are you?

 

[Jamesiv1]

Having credit cards and paying them off every month does nothing for your FICO score. FICO wants to see how you pay off a substantial amount of accumulated debt (credit cards, department stores, etc), and/or long-term debt (car or house). Borrowing money for less than 30 days says nothing about your credit risk.

I'm the credit card issuer. I make money by loaning you money. You keep an average monthly balance of $10,000 in credit at an annual APR of 13% and pay all your payments on time. Dude, I'm going to bump your limit to $20 grand and offer you a FREE bag of blowpops if you use it all up!


edit: Oh, and I'm going to have to bump your interest rate to 15.5% because, you know... the prime went up.

double edit: FICO score = "Please, please loan me more money so I can buy stuff to impress neighbors I don't even like, and so I can buy my kids a bunch of plastic stuff so they won't have self-esteem issues!!!"

 

[Zippyjuan]

Actually paying on time DOES help your score. http://www.investopedia.com/financial-edge/0212/how-is-fico-calculated.aspx

Your Payments
Your payment history is the most important factor in your FICO scores. Your history includes which of your accounts were paid on time, the amounts owed and the length of any delinquencies. Also included are any adverse public records such as bankruptcies, judgments or liens. All of this information collectively comprises 35% of a FICO score.

Your Debts
At 30%, the next most important factor are your debts. This data includes the number of accounts you owe money on, the type of debt and its total amount. Also included is the ratio of money owed to credit available, often referred to as a credit utilization rate. Interestingly, this calculation means that when a consumer opens up a new account and has more available credit, their credit utilization ratio will go down, so long as they do not incur additional debt.

Others
Beyond your payment history and your debts, the FICO formula takes into account three other factors in much smaller proportions. Your length of credit history makes up 15% of your score. This factor includes the length of time your accounts have been open and how long it has been since they have been active. This is why recent immigrants and young adults start off with lower credit scores. The types of credit used comprise another 10% of the FICO derived scores. In general, having a greater variety of differing types of accounts such as credit cards, mortgage payments and retail accounts is more beneficial than holding fewer. The last 10% of your FICO score is made up of data related to new credit applications such as the number of recent credit inquiries, and how many new accounts have been opened. Opening up too many accounts in too short of a time period is interpreted as a sign of risk and will lower your score.

 

[timosman]

FICO score is of no importance for both the lowest and the highest income earners. It is a tool to measure conformity and compliance of the middle class.

 

[Zippyjuan]

A lower FICO score may mean higher interest rates if you can get a loan or may even mean not being able to get a loan in the first place.

 

[Jamesiv1]

Actually paying on time DOES help your score. http://www.investopedia.com/financial-edge/0212/how-is-fico-calculated.aspx

ahhh... sorry. I misread your post.

I thought you said to use credit cards just pay off the balance every month.

Yes, making your payments on time is most definitely a positive credit score factor. That says to me (the credit issuer) you are an awesome little money-maker. I'm going to offer you MORE MONEY!!! [at about 18.9%]

 

[timosman]

Renting includes all the costs of buying- plus a profit you pay to your landlord. Buying and you get to keep their share. Once paid off, the mortgage part goes away- saving thousands of dollars for you. Rent and you don't get that savings. You also get to use part of your interest paid to reduce your income taxes.

Not always true. There are markets so out of whack the rents do not cover mortgage payments. Typically on the upper end of the scale. I would suggest not buying anything in the next 2 years as the market is clearly up for a correction.