Lacking plastic can, in fact, simplify your finances, but it also can cause complications in your financial dealings. Such things as renting cars or checking into hotels these days are based on credit cards. One leading hotel chain has put a $700 hold on a customer’s debit card if he can’t produce a credit card.
While it’s possible to build credit without one, it’s easier with one. Especially young people who don’t yet have mortgages and car loans can find it tough to build credit. That can make it difficult when it comes time to secure a loan. If the only thing on your credit history is a student loan, you may find slow sailing.
Credit scores are based on five categories: payment history (35 percent); amounts owed (30 percent); mix of accounts (10 percent); new credit (10 percent); and length of credit history (15 percent.) A credit card can impact the first three of these categories, affecting 75 percent of your overall score. At least one active account that has been reported for six months or more is necessary to generate a report at all.
A credit card does not inevitably mean interest payments. And you needn’t pay hefty fees. A secured credit card allows you to put down a deposit, which will be returned when the account is closed. Transactions of these cards are reported to the credit bureaus the same as with standard cards.
Paying off a card each month or in the “grace period for purchases” avoids interest and fees. The credit card companies make their money on those who carry balances, especially very large balances.
Capitol One, Wells Fargo and Bank of America are among those institutions that offer secure cards. Inquire at your own bank or credit union to see if you can take advantage of that option.
If you dislike the idea of any amount of debt, use your credit card for a minimal purchase, such as lunch, just once a month. Then pay it off and you reap the benefit of a good credit rating. If you use the card to purchase an item for which you could have paid cash, the same benefit applies. But you’ll notice the difference when it comes time to make a major purchase.