03-03-2009 11:09 AM
I passionately believe that paying interest for the privilege of using someone else's money is the biggest trap consumers are victim to in the realm of personal finance. Unfortunately, this is how the average consumer chooses to do business. Conversely, I believe that by paying in cash for purchases, avoiding interest and keeping your money in your own pocket, you can get ahead financially. In short, if the "norm" is accruing debts and paying interest, then I believe by behaving abnormally, you will prosper. This means that you have to live by the age old mantra of " If you can't afford it, you can't have it". I and my wife do just that as much as possible. We pay cash for purchases including cars, have no debt except for our mortgage, refuse any new debt, and until recently avoid credit cards like they're poison. Our credit scores from the big three range from 700-720. In doing the research to discover why my scores aren't higher, we found that because we haven't any revolving credit accounts, we are actually penalized in our scores. Credit cards are so well marketed a product in our country that now you are forced to have them if you want the best credit score. I've known this for a while, but I just didn't care. My conclusion was that if I don't ever borrow money, why do I care what my credit score is. Nowadays though, employers check your credit score when you apply for a job. I'm recently married, and my finances are not yet such that I can afford to pay cash for a home, and there is a certain level of safety and quality in a house I have to insist on for my family to live in. So, OK..Now I have to care about my credit score, which means I have to get a credit card if I want the benefits they provide in improving my credit. But I still don't want to pay interest. It's my money...I earned it...I don't need there credit...so I don't need to pay them..Right? According to my research, that's wrong. I and my wife have now opened the following credit card accounts.
USAA(MC), 15,000 limit
Edward Jones(MC), 7,000 limit
From talking to these companies, it seems that if I pay in full each month and avoid interest payments I also lose the benefit on my credit file, because they both report to credit bureaus once a month after I pay my bill, which means they will report a zero balance....which gives me absolutely NO benefit. If the bureaus see a zero balance, they have no way to determine if I used the cards responsibly and paid them off or simply didn't use them at all.
From reading this forum, I have recognized like souls that know you have to play the game in regards to credit cards...so I pose this question...HOW DO I AVOID PAYING INTEREST AND AT THE SAME TIME AVOID THE ZERO BALANCE?!?!?!?!??!?!
03-03-2009 11:23 AM
you don't have to pay interest as long as you pay before your due date.
a) if you you pay what you owe before your statement closing date, then you CCs will report zero balance to your CR
b) if you pay after your statement closing date and before your due date, then whatever balance shows on your statement will be reported to CBs and you don't pay interest.
03-03-2009 11:53 AM
I agree with most of the intent of your original post. You are missing a few details, though.
If you use a credit card for some purchases and pay in full before the due date, there are several advantages.
1. You don't have to carry as much cash.
2. You have the card for emergencies such as an unplanned car repair, medical treatment, etc.
3. You have an improved credit score, which you have found is more important than you might think.
4. You can't rent a car without a credit card.
5. You can't stay in a motel or take a cruise without a credit card. Well, you probably can with great difficulty.
6. You can get cash back or rewards on some cards.
The only way that a CC reports a zero balance is if you pay before the statement is generated. If you make a charge for $100, the statement is generated with the $100 balance. That is the amount reported to the CRA. You then pay the $100 before the due date, which means you pay no interest.
My personal standards for acceptable interest:
1. Business truck financed in 2005 for 4.6% interest. As a business expense that is before taxes so actual rate paid is about 3% or less than what I could make on an investment.
2. Personal vehicle financed in 2007 at 1.9% interest. Again, less than I could make on an investment.
3. Only acceptable interest on a mortgage would be the lowest available rate, which generally requires a FICO of 760+. No escrow for taxes or insurance, which also requires "excellent credit".
4. An "extra" vehicle, that is NOT my required transportation. In this case that was a motorcycle, but has been a luxury car in the past: CASH ONLY.
People expecting to buy fancy things just because they can get them on credit are a disaster waiting to happen.
03-03-2009 12:07 PM
Conversely, I believe that by paying in cash for purchases, avoiding interest and keeping your money in your own pocket, you can get ahead financially.
I passionately believe I get ahead faster financially by paying with the money of someone else, getting rewards for doing it, accruing interest myself in the interim, then paying them back the original ammount just before it is due
03-03-2009 12:50 PM
As I replied to your post in another thread, you really have to time payments and charges carefully to get an oft-used card to report a $0 balance. If you simply charge purchases, wait till you get a statement, then pay they total amount due (the total charges on the statement) you will never pay interest, but a balance will be reported to the bureaus. I did this for years and never paid a cent in interest before realizing that having 6-8 cards all report a balance, no matter how small, looked bad to FICO, and when I was getting preapproved for a mortgage. If you have 2 cards, have one report a $0 balance each month, and the other report less than 10% of the available credit for maximum FICO points. Some people would say to alternate; I don't know if that really helps.
So if your USAA card is to be the one that reports a balance, make sure it is less than $1500, and if it's your Edward Jones (never heard of that one), it's under $700.
If both report $0, it doesn't look like you are using it; you cannot be successfully managing something you aren't using, so you lose points.
03-03-2009 01:06 PM
03-03-2009 03:24 PM
To keep the gyrations to a minimum, I rotate through four cards, charging groceries, gas,online, and incidental items. Substantial charges go to my two lowest rate cards, "just in case". I haven't carried a balance in over five years. Between my wife and I, we currently have a total balance of $1055.78, with one account at $0, another with a positive balance of $15.30, and six small balances between $40 and $400.
With the different due dates on each card, a balance is always recorded, monthly, regardless. Usually between $500 and $2500. It is certain that one or two accounts will have a $0 balance.
I like rewards, and I like using other people's money for at least fifteen days before paying the balances.
My FICO runs around 800.
03-03-2009 03:51 PM
OK...thats refreshing news. The way my CC companies explained it...they don't report my balance to after my due date
03-04-2009 01:27 AM
Thank you all for the sage advice. I feel better about the whole thing having read your replys. To clarify, when I say that using other people's money to get ahead is a recipe for disaster, I mean for the average consumer. I realize there are ways to play the game correctly where you can come out ahead. Most people aren't like those of us who learn the game and play it correctly, having a back up strategy and saving to cover unforseen situations. You gotta plan for the unknown.
Respectfully, I would like to clarify a few things from one of the posts above:
1. You can Absolutely rent a car without having a Credit card. I've done it a dozens of times with no problem. True there are some rental companies that insist on the credit card, but for most, a debit card works just fine. Some of the ones that allow debit card usage will hold a certain portion of your bill immediately, but I always expect the expense anyway, so its no big deal. BTW, you don't want to do business with the CC only rental companies anyway...I've always found them to be more expensive.
2. You don't need a credit card to go on vacations or cruises. Done several of those throughout my life, and got through each one without a credit card. It was never a problem.
3. You don't need a credit card for Emergencys. What you need is a good emergency savings account and good insurance. That way, if a real emergency pops up, you have the money to weather the storm. Using a credit card for emergencys causes two problems. Not only the original emergency the money was needed for, but also a new financial emergency because you now have to figure out out how to pay your credit card bill.
These are all just myths the CC companies want us to believe, because the more people that believe them, the more money they make.
Lets be real...most people get CCs because it is an illusion of free money, where they can put off the reality of payment for some other time. For people like us, they are a great way to game the system, to use OPM to get financially ahead, or an excepted neccesity for getting the credit score we want. But lets be real and not pretend that CCs are these essential must haves that they're marketed to be.
myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.>> About myFICO