Monday, February 23, 2015

Why Most Americans Need Credit

You need a credit card or loan to generate a credit report and credit score. No credit no credit score, it’s just that simple. If you live a cash only lifestyle and don’t feel you will ever need to apply for a credit card or loan then you don’t have to worry about a credit score. However, most Americans at some point in their lifetime will need to apply for a credit card or loan at least one time.

If you have no credit it can be almost as difficult to get approved for credit as someone who has bad credit, however they are not the same. If you have no credit or bad credit try opening a department store credit card. Once approved and you have at least 6 months of good payment history you can apply for a bank credit card.

If you need to apply for a credit card, student loan, mortgage loan, personal loan, home equity loan or line or credit, car loan, business funding, refinance, consolidate loans, need any type of insurance, need a utility account, cable or internet service you will need a credit score of at least 650 to get approved or to get service from a service provider.

As credit card companies became more competitive they started to target consumers who were the most lucrative to them – essentially consumers who always carried a balance from month to month. Companies then began offering teaser interest rates, cash back, and other perks to retain consumers and attract new consumers.

Some credit card companies offer perks such as frequent flyer programs, discounts on products, rebates, cash back rewards, points and other perks. Credit card interest rates can range from 1% to 29%. Grace periods vary by company. Credit cards also come with lots of fees such as annual fees, late fees, over-the-limit fees, balance transfer fees, and more. Read the terms and conditions of the credit card including the dispute policy and fees charged. Don’t get tricked by the 10% off discount to open a credit card. Compare at least 4 different credit cards to see which has the best feature for you using sites like or Pay the balance in full every month.

You are not a good candidate for a credit card if:
  • You constantly pay late fees
  • You are a procrastinator
  • You are struggling to pay your current bills or living paycheck to paycheck
  • You are unemployed, underemployed or a college student
  • You don’t keep track of your spending or don’t have a budget
  • You are an impulse or emotional shopper or have a shopping addiction
  • You aren’t good with paying bills
  • You are already owe a lot of debt
  • You defaulted on your student loans or already have bad credit

Take advantage of credit card perks such as:

  • Return protection - if you are able to return a purchase your credit card may cover the cost of the item
  • Purchase protection - if your purchase is stolen or damaged you could be reimbursed for the cost of the item
  • Warranty extension - your warranty can be extended for up to a year
  • Rentals - covers damage or loss when you rent a car which is cheaper than the insurance coverage offered by rental car companies and can be used in addition to your car insurance coverage 
  • Shopping portals – most credit cards offer an online shopping portal which offer deals that earn higher amounts of rewards points or cash back
  • Traveling protection - some credit cards offer trip cancellation and trip interruption policies, lost or damaged luggage insurance, travel assistance hotlines, coordinate roadside automobile repairs or discounts on entertainment
  • Identity Theft - offer more protection that debit cards if your card is stolen or comprised. Visa and MasterCard have a zero liability policy that protects consumers and any credit card with the Visa logo but not all credit cards offer this protection.
  • Laws – consumers are protected under the Fair Credit Reporting Act, Fair Credit Billing Act and Fair Debt Collection Practices Act. 
  • Fees - some credit cards offer no annual fee or low fees.
  • Programs - rewards cards only work to your advantage if you pay the balance off in full each month.

However, I encourage you to reduce your dependence on credit cards as you pay off all of your debt and as your financial situation improves. Credit should be a secondary form of payment not a primary form of payment.


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