@Anonymous wrote:
@wacdenney wrote:
@Anonymous wrote:
@EdMan63 wrote:
I agree with others that it really points a finger at your credit worthiness more than anything else and probably has a lot to do with low or hight SL. So in that regard a high APR is probably limiting your growth with the card. But since we should never be paying interest on a reward card its not really important to me in that regard.
+1
IMO ideally we should never be paying credit card interest at all, on any card. If you think about it, paying interest is like buying a $100 pair of shoes for $120. I can't think of any good reason for doing that.
Every portfolio should have a card designed for carrying a balance. There are many reasons why a person would want to make purchases strategically. If your $100 pair of shoes is on sale NOW for $70, then it makes sense to buy them now and pay $75 for them instead of paying $100 on pay day when the sale is over and that's only one example.
By "carrying a balance" do you mean "paying interest on a balance" ? Everything I have read here has suggested that the ideal is all cards except 1 reporting zero balance, and 1 card reporting between 1%-9% utilization. This does not seem to mandate carrying a balance month-to-month to incur interest...
In the world of finance, nothing that is "ideal" is guaranteed.
Yes, in order to have the best FICO score, it is often suggested that you should let <10% of your balance on one card post, and others should report zero. It is never encouraged to pay interest to increase FICO score. FICO doesn't even know if you're paying interest.
That rule is simply meant to get ahead of the current scoring system. In the current system, FICO model cannot differentiate between interest carrying balance and balance that will get paid off in full by the due date. And I consider this a weakness of the model and the reporting system.
Anyhow, credit cards are meant to defer the payment on a purchase, and in the process, earn some rewards as well. It's essentially short-term debt. FICO maximizers pay off their debt (save that <10% part) even before the statement cuts, thus foregoing 20-odd days of interest float (which, in today's terms, might not be worth a lot though).
But since CC are essentially a short-term debt mechanism, you can, as Wacdenny said, use them for short term financing when the discount is worth much more than the interest you're going to pay them. In that example, it's not the case that you're carrying $70 (it could be any other number) to improve your FICO score. It's because you didn't have enough funds right then to pay off the balance (and hence incurred say 2% interest, or $1.40). But you saved $30 because that deal comes once a year. So you're still ahead by 28% even after paying some interest.
While statements like "don't buy anything you can't pay off right now with cash" are good catchphrases and make sense to build some financial responsibility, it is too broad a statement which could often mean making bad deals.
For example, if you were going to definitely buy a MacBook and you were only to have enough funds in say this February, and that's the reason why you didn't purchase them last December with your Discover 10% Apple Pay deal with <20% APR, I'd say that's bad decision-making.
