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Break the routine looks to advise and guide city dwellers and suburbanites alike to think smart by different about their time and money. My goal is to provide financial wellness education, spare-time management techniques and suggestions for fun and fulfilling free time around the city I love. Through these shared articles, influences, and improved life techniques I hope you create your own plan and act on them immediately. I'm here to help and inspire you. 

Let's talk about Credit

Financial Advice

Let's talk about Credit

Eric Roseman

Often times I get asked by friends, "how many credit cards do you have?" or "What type of credit card do you have?" The basis for these questions I believe stem from people's total ignorance of credit and credit building. Too many people view credit cards as a source of evil and not as an opportunity. If you are diligent about paying off your monthly balances and consistently using your cards then it is ok to have more than one credit card and spend on all of them. When you are young, it is really important to build up good credit because when you eventually need to finance an important life decision, you'll want to get the lowest rates possible and the amount of money you truly need.  

What goes into the credit score and what is a good score? 

I recently got my credit score calculated through mint.com. The score is a weighted average of numerous components that are unique to the different credit scoring agencies (They are all pretty similar). A rough breakdown of the important components looks like this: 

35% - How timely are your payments? Are you paying off your monthly balance every month or are you carrying a balance over.

30% - Credit Utilization Rate. This one is really interesting because it is the amount of money you charge to your card divided by the amount of total credit allowed. In that case, it behooves you to negotiate a higher credit limit on your accounts. 

15% - Length of history. Start building credit folks! This is the exact reason my mom slapped a credit card in my hand in high school and said, use this sparingly!  

10% - New credit. It is better to have 3 or 4 credit cards than none at all. 

10% - Types of credit. This factors in different lines of credit including credit cards, student loans, consumer loans, etc. The moral of the story should be to pay all of these down as quickly as possible and not carry over expensive balances. 

A good credit score from the credit bureaus should look at all the above factors and pop out one inclusive score. As a standard, the average 18-24 year old falls somewhere in the 630 range. Anything above 700 is considered good credit. Having "good credit" suffices but don't let your foot off the gas of building it up! 

What card is right for me and why?

As a consumer, never underestimate the value of rewards. Credit cards compete with each other to win your business and in-turn throw voluptuous reward bonuses your way. If you are new to the credit card game, or just looking for another card, play the companies against one another, hop on the phone and negotiate. If you don't want to go through all that effort, think about what you like to do and figure out how to get it free (or cheap) using credit card points. Consult Bankrate.com, use your resources but don't just jump at a mail offering or email about "qualifying for their credit card." Given the relationships that credit card companies have built with airlines and hotels, some of the BEST offerings come in the form of travel awards. 

When evaluating card offerings, you need to take into account a host of variables. How much do I spend a month? How often do I travel? Am I able to put large purchases on my credit card? Can I afford an annual fee? All of these play into the decision of which card to buy. While everyone's needs and situations are different but put your money to work and reward yourself with what makes you happy.

Because I want more money to travel I use the Chase Sapphire. For other similar reward based cards you could check out this search. 

Ramit Sethi writes a great chapter in his book I Will Teach You to be Rich on how to evaluate and improve your credit score and how to manhandle the credit card companies into giving you what you want (waiving fees, increasing credit limits, special offer bonuses).