Credit Card vs Debit Card

[longusername12345]

Hey Leo! In your Advice for College and High School Students video, you recommended staying far away from credit cards. 
 

I spoke with a financial advisor the other day and the first thing he said was to get a credit card and build good credit while I’m young. Everyone around me at work says I’m stupid for challenging that idea and that I need a credit card. 

Is it worth it? 

[thepixelmonk]

I've operated on debit cards pretty much my entire life. If you very specifically need to build credit for something, go ahead and get one and just treat it as a debit card until you don't need it anymore for your desired score.

Edited October 30, 2022 by thepixelmonk

[Phil King]

Yes get a credit card at 18 but dont spend more than you can pay. I got the Discover It card when I turned 18 and maybe spent like $50-$100 a month and paid it off immediately. After a couple years of this, youll build up a high credit score of 750+. Also with cashback, you essentially get a 1-2% discount on every purchase. I think Leo is mainly talking about people being irresponsible with credit cards and those offers for cards you get in the mail. 

[Tristan12]

Yes definitely get a credit card, but only if you're going to use it properly and not build up debt. Make sure to pay it off every month so you don't accumulate interest. There are a lot of benefits to using credit cards if you use them properly. You should only stay away from credit cards if you feel like you'd abuse it and use it irresponsibly.

[Roy]

Credit cards are awesome for helping build credit and collecting points for traveling, which is really important to do from a young age so when you make your first big purchases you get a good deal. It will save you tens of thousands of dollars on stuff like a car/house. The problem is most people are financially incompetent because they don't teach people to be literate in school, so that's why so many people get into hot water.

It's literally 4th grade math. Pay total by X date every month, or you pay that plus extra. All you have to do is count how much money you have in your chequing account and make sure there is enough to transfer to your credit card. Your only responsibility is to check the calendar and make sure you don't spend more than you have. How so many people fail to do this is almost hilarious, if there wasn't any suffering involved.

I've had a credit card since about 2017 and I've collected enough points to fly anywhere on the planet for free, or a couple short trip if I want, and building my score really high was the difference between having to pay $360 on my monthly car payment rather than $500 like some people I know with trash credit ratings. If I wanted to get a mortgage too eventually my score will help save me probably $20,000+ on interest alone over 25+ years.

When looking for a credit card with your bank basically look at the perk you want most, I recommend travel points the most. The cashback and other ones are pretty meh. You can ignore the interest rate pretty much, since it's irrelevant if you are going to pay off your card in full every month like a responsible adult .

Also you want to ask for the highest possible limit you can get. Even if you will never (and shouldn't) spend up to that limit in a month, for some reason it helps your score the most. Don't ask me why, it's just what the credit unions like to see. It will help your score go up faster if you are spending let's say $500 a month on a $10,000 limit card -VS- $500 a month on a $2500 limit card.

Basically credit cards/loans are opportunities to prove to institutions and companies you are responsible with money, so they will be more likely to give it to you and give better deals. Just don't be a retard and spend money you don't have, pardon my language.

Edited October 30, 2022 by Roy

[Yarco]

If you ever want to buy a house or car and not have to pay cash for it, then you need to get a credit card and start building your credit score.

Even cell phone companies, jewelery stores, and apartments run credit checks before doing business with you. Anything where you aren't paying upfront. So unless you want to limit yourself to prepaid phones and paying cash for everything, you need to start building credit.

At least in North America. In Europe there are some countries where it's uncommon to have a credit card still.

2 hours ago, Roy said:

Also you want to ask for the highest possible limit you can get. Even if you will never (and shouldn't) spend up to that limit in a month, for some reason it helps your score the most. Don't ask me why, it's just what the credit unions like to see. It will help your score go up faster if you are spending let's say $500 a month on a $10,000 limit card -VS- $500 a month on a $2500 limit card.

Credit utilization ratio. They want to see you regularly use credit, but not max it out. Ideally keep your balance less than 10% of your limit.

So if you buy a new PC or furniture or something expensive that puts a big balance on your card, I'd pay it off even before the end of the month to get your ratio back down.

But you also need to use your card regularly, because a 0% ratio (not using your card) is also bad lol.

I just put absolutely everything on my credit card to collect points / cash back then pay it off right away.

Edited October 30, 2022 by Yarco

[Leo Gura]

Personally, my rule is to simply never need credit. In which case I don't need a credit history.

But this strategy only works if you are also serious about making money.

The only reason I use a credit card is for car rentals.

If you do end up getting a credit card for purposes of building credit history, you have to be extra careful not to use the credit card beyond your savings.

The real problem isn't credit cards, it's credit. Try to live without reliance on credit -- is my advice.

Edited October 31, 2022 by Leo Gura

[thepixelmonk]

3 minutes ago, Leo Gura said:

Personally my rule is to simply never need credit. In which case I don't need a credit history.

But this strategy only works if you are also serious about making money.

The only reason I use a credit card is for car rentals.

Credit isn't only used for actual purchases though. Good credit is needed to rent apartments and such. But yeah you should operate as if you never need to use credit, and if you have a credit card just pay it off immediately and only use it for increasing your score.

Edited October 31, 2022 by thepixelmonk

[Leo Gura]

5 minutes ago, thepixelmonk said:

Credit isn't just used for actual purchases though. Good credit is needed to rent apartments and such.

I have never needed credit to rent an apartment. I've rented many apartments. As long as your credit isn't bad, and you have a decent income, they will rent to you.

Apartment companies are not looking for good credit, they are merely weeding out people with a history of not paying. Dead-beat renters.

Edited October 31, 2022 by Leo Gura

[JuliusCaesar]

@longusername12345 If you want to start a business. Then in all likelihood you need a solid credit history. Without it, you're seriously hindering the growth potential of your endeavor most of the time. As you'd usually benefit from using financing to expand your enterprise.

 

If you don't want to start a business but feel that you can handle the responsibility of having the ability to spend money you don't have without burning yourself in the process. Then having a credit card can be very beneficial.

 

Most give you cashback, and some of the signup bonuses are exorbitant. That's good for you, they want you to get the card hoping you'll mess up and get deep in debt with it and pay 28%+ APR on the debt, so they'll often give you sign up deals that are heavily in your favor.

 

Also, if you ever want to take a loan, let's say to buy a home, or a car, or anything for that matter then you probably need good credit anyway. 

 

Of course, if you don't ever want to borrow money, and you don't want to play the credit game for profit. Then I suppose there isn't really any good reason to get a credit card. Especially if you can't handle the responsibility.

 

Oh, and one more thing, there are quite a few, though not the majority of cards offering 0% interest for a certain duration of time, usually about 18 months or slightly more/less. 

 

And there's also this thing called Manufactured Spending, which I probably won't discuss much here, but it can be a profitable technique. In the right hands it's very powerful, in the wrong hands you'll wind up in jail somehow even though you're probably not violating any laws.

[Hello from Russia]

Early in life when you're broke it's an amazing tool, IMO. Later it becomes obsolete once you get better with income and stuff

Edited October 31, 2022 by Hello from Russia

[JuliusCaesar]

1 hour ago, Hello from Russia said:

Early in life when you're broke it's an amazing tool, IMO. Later it becomes obsolete once you get better with income and stuff

Well said, and very true.

[Tristan12]

On 10/30/2022 at 9:14 PM, Leo Gura said:

Personally, my rule is to simply never need credit. In which case I don't need a credit history.

But this strategy only works if you are also serious about making money.

The only reason I use a credit card is for car rentals.

If you do end up getting a credit card for purposes of building credit history, you have to be extra careful not to use the credit card beyond your savings.

The real problem isn't credit cards, it's credit. Try to live without reliance on credit -- is my advice.

But credit can open up a lot opportunities for investing in real estate, as not all debt is bad. That's the main reason why I care about building/maintaining a good credit score, is because I want to get into real estate investing in the future, and a good credit score will help me get good mortgage rates.

There are also other benefits to using credit cards such as extra security on your purchases, not paying fees per purchase that you would have on your debit, and also all the benefits that come with different credit cards if you're able to make use of them (cash back, rewards points, and things like hotel discounts, free airport lounge access and insurances like cellphone or lost luggage insurance on the higher annual fee cards).

I think as long as you treat your credit card like a debit card and you never spend more than you can afford, then you will never have to pay any interest/spend any more than you would by paying cash, but then you get all the benefits of credit.

Also Leo don't you have a mortgage? For which it would benefit you to have credit history and a good credit score?

Edited November 2, 2022 by Tristan12

[JuliusCaesar]

8 hours ago, Tristan12 said:

But credit can open up a lot opportunities for investing in real estate

Indeed.

 

8 hours ago, Tristan12 said:

as not all debt is bad.

Debt is inherently good; however, it becomes deleterious when abused.

 

8 hours ago, Tristan12 said:

That's the main reason why I care about building/maintaining a good credit score, is because I want to get into real estate investing in the future, and a good credit score will help me get good mortgage rates.

A most intelligent decision, Citizen.

 

8 hours ago, Tristan12 said:

There are also other benefits to using credit cards such as extra security on your purchases, not paying fees per purchase that you would have on your debit, and also all the benefits that come with different credit cards if you're able to make use of them (cash back, rewards points, and things like hotel discounts, free airport lounge access and insurances like cellphone or lost luggage insurance on the higher annual fee cards).

I think as long as you treat your credit card like a debit card and you never spend more than you can afford, then you will never have to pay any interest/spend any more than you would by paying cash, but then you get all the benefits of credit.

All true.

 

8 hours ago, Tristan12 said:

Also Leo don't you have a mortgage? For which it would benefit you to have credit history and a good credit score?

About this I wonder myself actually.

[longusername12345]

On 10/30/2022 at 6:14 PM, Leo Gura said:

Personally, my rule is to simply never need credit. In which case I don't need a credit history.

But this strategy only works if you are also serious about making money.

The only reason I use a credit card is for car rentals.

If you do end up getting a credit card for purposes of building credit history, you have to be extra careful not to use the credit card beyond your savings.

The real problem isn't credit cards, it's credit. Try to live without reliance on credit -- is my advice.

Noted. So you use a credit card? And loan cars? I recall you advising to stay away from all loans, has this changed? Are car loans okay? 
 

 

[Heart of Space]

Loans and credit should only be used as a form of investment for your future.  

This means loans for education, vehicle to get to work/school, and a house, and in case of emergency medical bills.  

All other forms of credit are inventions by mans satanic nature.  

Edited November 7, 2022 by Heart of Space

[longusername12345]

Awesome, thanks for all the tips guys!!! My key takeaways are credit cards are useful, don’t depend on them, and use them responsibly. Love you all! 

[ThePoint]

On 31/10/2022 at 10:06 AM, Roy said:

If I wanted to get a mortgage too eventually my score will help save me probably $20,000+ on interest alone over 25+ years.

Is that $20,000+ altogether over 25+ years? 

[ThePoint]

@Roy

[Roy]

On 11/8/2022 at 2:00 AM, ThePoint said:

Is that $20,000+ altogether over 25+ years? 

Idk exactly. It all depends heavily on the interest rates, market, and your credit score. But having great credit will save you thousands of dollars than having bad credit.

Hell, if you have bad credit you might not even be able to buy a house at all because no bank or union will take you on or lend you money.