I have 7 credit cards (6 personal, 1 business). When most people hear this, they get the same predictable look on their faces. I can tell they’re thinking “this guy is a financial coach and he has 7 credit cards?? He must be terrible at his job.” Most people assume I have a terrible credit score or a spending problem. I’ll let you know in a little while if they’re right.

In truth, most people with a lot of credit cards got there because they took on too much debt. Those two concepts don’t have to be linked. Correlation is not causation.

Knowledge is power. Knowing how your credit cards work will give you more power to capitalize on your card. Credit cards are a huge part of my strategy for living the life I want. I know from first-hand experience that you can use them to live a life that excites you.

Credit Card Misinformation

There is a lot of misinformation about credit cards out there. Some of it is well-meaning but wrong, some of it is outdated, and some of it is plain harmful. Let’s start by knocking out a few of those myths.

Paying off too much lowers your score. 

I came across this tidbit on the Instagram feed of a very popular personal finance guru recently. I’m not going to name them because I respect them and what they do for people, but this is flat-out wrong. 

Paying off “too much” of your credit card debt will not lower your credit score. There is no such thing as paying off too much. You should pay off your entire balance every month (more on that later).

You should only have one card. 

This one trips up a lot of people, and I’m not sure where it got its start. The number of credit cards you have doesn’t hurt your credit score. In fact, having multiple cards can often boost your score if you are using them all correctly. 

More cards tend to mean a higher total credit limit. This helps your credit score by improving your utilization. Utilization is the percentage of your available credit that you’re tapping into. The lower your utilization, the higher your score.

You have to carry a balance. 

This one relates to the first point, with a slight distinction. A lot of people are under the impression that carrying a balance will boost their credit score.

While you do need to continue using your accounts to keep them active and open, you do not need to carry a balance. I have one card that I only use to pay for Spotify to keep the account open, and I pay it in full every month. It shows up on my credit reports as a zero balance, but it remains active since I charge something to it each month.

Annual fees are evil.

This one is tough. A lot of the cards with the best earning rates and secondary perks also carry annual fees. In other words, you have to pay a fee every year for the privilege of using that card. That’s a lot to stomach for most people, since the fee doesn’t provide any value.

Yet these cards have better earning rates and secondary perks. These perks include dining and travel credits, trip insurance, extended warranties, and more. Depending on your particular spending, you can earn way more in rewards than you spend on the fee.

Credit Score Quick Breakdown

People continue to believe these myths about credit cards because they don’t understand Credit Scores. There is a lot of mystery surrounding the credit score, so much so that it warrants its own article. That one is in the works right now, and I’ll link to it here once it’s live.

There are FICO Scores, Vantage Scores, Experian Reports, TransUnion Reports, Equifax Reports, and on and on and on. Dozens of sites offer you a free credit score, but what are they even telling you? Every bank is different, so it’s possible the information you get isn’t even all that useful. 

The bank bases your credit score on a handful of factors they get from your credit report. Which report the bank uses is up to the bank, and is often online. Banks use a FICO score to assess creditworthiness. Most free credit sites provide you with your Vantage Score. In other words, the score you can get for free generally doesn’t match the score a bank is seeing.

I talk a lot more about the categories and how they work in my credit scores article. The categories in a FICO score are Payment History, Amounts Owed, Length of Credit, Types of Credit, and New Credit. Absent from that list are the number of cards and most other things people believe help or hurt them.

How I Use Credit Cards

By now you can see that credit cards aren’t all that mystic, but now let’s talk about how I use them to live a life that excites me.

Pay every pay period. 

By every pay period, I don’t mean every time your credit card bill is due. I mean every time you get paid. If you get paid weekly, you should pay your card weekly. If you get paid bi-weekly, pay your credit card then. Get paid monthly? I’m sure you can figure out how often to pay.

By paying every pay period, you better link your spending to your income. You have to track how much you’re spending on your credit card. You need that money in your account this Friday, not a Tuesday 7 weeks from now. Credit cards lead to overspending by allowing you to get the reward right now, and face the consequences much later.

It's hard to make good decisions about the future because you actually regard “future you” as an entirely different person. By paying off your credit cards every pay period, you can hack that brain loop. Keep the consequences on present you, rather than future you. This will ensure you spend within your means.

Set up auto-pay just in case. 

Even though I pay my card off every pay period (weekly in my case), I still have auto-pay set up on all my cards. This provides me a little peace of mind in case I forget something, or somehow slip-up in some other way. My auto-pay won’t come out of my account if I’ve already paid the full balance on my card. I don’t end up overpaying my cards when I don’t do anything wrong.

I definitely recommend setting up auto-pay even though you pay your balances manually. It lets you worry a little bit less knowing you have a safety net. Everyone slips up, having auto-pay ensures it won't hurt you. Reducing stress is never a bad thing, after all.

Buy it only with the money in the bank already

This sort of goes with paying your cards off more than on their due date, but takes it a step further. A debit card will only let you buy something if the money is in your account at the time of purchase. Think of your credit card like a debit card. Only buy something if you can “back it up” with the money you already have. 

In other words, if it’s Tuesday and you only have $10 left in your discretionary spending, don’t buy a $15 lunch. Even if you get paid Friday. Using credit cards to cover things you want but can’t afford is a recipe for overspending, debt, and disaster.

What to Look for In A Credit Card

So we know credit cards aren’t bad, and we know how to use them correctly. What about deciding how and when to get a new card? There are a few things to watch for when applying for a new card, and a few things to ignore altogether.

Attainable spend requirements. 

Most credit cards offer some sort of welcome bonus. You have to spend a certain amount of money within a given time-frame, and you get some set rewards. The type of reward will vary based on the card, but these welcome bonuses are a great way to get some free money.

Something to watch out for, though, is how much you will need to spend. I advocate putting every expense that you can on credit cards. Yet you should never spend more than you were planning on to get a welcome bonus. Credit cards offer great protection and rewards. They also present great opportunities for debt.

Higher than normal bonuses. 

Most cards have a base welcome bonus that they almost always offer. Every once in a while, those cards will offer increased bonuses to try to encourage more people to sign up. You may be targeted, or it may be an increased bonus that’s available to everyone. 

It’s also often possible to get a higher bonus than is publicly available through a referral. Ask around, see if any of your friends have the credit card you’re planning to apply for, and get them to refer you. You can compare the public offer with the referral offer, and go with the one that’s better for you. This has the added perk of providing your friend with a slight bonus for referring you, so it’s generally a win-win.

I always watch out for bonuses that are higher than normal. They’re the perfect time to apply for credit cards I was planning to get anyway. Once I decide I want a particular card, I research the bonus and then wait until I see one that’s a better deal. Since I don’t need a credit card to finance my life, I can wait around until the terms are the most favorable before applying.

Perks and categories you’ll actually use. 

This one may seem obvious, but it’s often overlooked. It’s easy to get wowed by the advertising of the credit card companies. You'll end up with a card that doesn’t match your lifestyle as a result. The stakes are higher if the card has an annual fee. Think carefully about what your lifestyle is, where you spend your money, and what card will be the best for you. 

I don’t use ride-sharing services very often and have very few streaming subscriptions, so I’ve avoided cards that offer those bonuses. I just wouldn’t be using them. 

Know where you spend so you know what you’ll use.

To play off the last point, it’s even easier to fall for credit card marketing if you don’t know where your money is going. You may think you’ll use a credit card’s features, only to discover after you’ve had it for a while that you never do. 

Track your spending, categorize it, and be honest with yourself. Don’t fly very frequently? You probably won’t use the travel perks that come with that $500 a year premium travel card.

What to Ignore In A Credit Card Offer

Credit card offers also contain a lot that you can ignore. Especially once you’re a responsible user of that credit. Here are a couple.

Introductory APR periods.

I don’t know what the APR is on a single one of my credit cards. That is to say, I have no clue how much interest I will accrue. The reason for this is pretty freaking simple: I have never carried a balance on my cards. Don’t carry a balance, don’t pay interest.

There are a ton of credit cards out there that tout their introductory APR period as a reason to apply for that card. Avoid these for a couple reasons.

First, If you know you have a 14-month period where you will pay no interest, you’re more likely to run up a balance and tell yourself you’ll pay it later. This is exactly the scenario that the credit card company is banking on. They want you to pile up interest-free debt so they can turn on that APR switch at the end of your intro period. Then, they begin bleeding you dry.

Second (and a lot less dire), cards that offer intro APR periods tend to offer it as the only welcome offer. So you may have a period of interest-free time, but you don’t get any bonus points, miles, or cash back.

Cards you won’t use. 

I get at least one credit card offer in the mail every single day. I also throw away 100% of these offers without even opening them (Hey Bank of America if you’re reading this, stop wasting paper).

I control my money and not the other way around. I know exactly which credit cards I will use and which will collect dust. I also know that the cards I will use seldom send out offers in the mail, and those mailers are worthless anyway.

Research cards that will work for your lifestyle (I like www.creditcards.com), and apply for those cards online. You can even use the CardMatch tool to see if you are pre-qualified for any cards.

A Few Last Things to Consider About Credit Cards

I know this has been a long one. Credit cards are something I’m pretty passionate about, and there’s a lot of misinformation about there. So a few more quick things before you go.

Miles. Cash back. Points, points, points. 

By now you’ve examined your lifestyle and your spending, so it’s time to match your credit card to you. Generally speaking, cards will offer miles, cashback, or points. While I prefer points (such as American Express Membership Rewards Points and Chase Ultimate Rewards Points), they’re the most complicated to redeem. Most people are comfortable with a simple cash back card. Earn cashback, cash out into your bank account, and use it for whatever you want.

You can also get a card that’s tied to a specific airline, hotel, or brand. These come with perks at that establishment and reward you in their loyalty points. This can be a great way to go if you always fly the same airline or stay in the same hotel brand.

At the end of the day, you should tailor the type of credit card you get to your individual needs, spending, and lifestyle.

Pay it off. 

I sound like a broken record, but that’s because so many people don’t do this. Pay your card in full every month, or you will wind up paying more in interest than you earn in rewards. Some forms of debt are unavoidable, but credit card debt usually isn’t one of them.

Track your perks.

Most credit cards come with extra perks beyond the percentage you get back on purchases. These perks are often where most of the value of the credit card comes from, especially on cards with an annual fee. Make sure you are tracking any perks your cards may carry. This way, you know what card to use on what purchases and how much of a particular statement credit is remaining.

Paying Off The Debt

Got in over your head? Credit card debt already dragging you down? Want your credit score higher so you can get the cards you really want? The first step towards living a life that excites you will be getting rid of your debt, and I can help you with that. Debt is overwhelming and emotional. As a financial coach, I have the tools necessary to pay it off. More importantly, we can overhaul your money habits so you can keep it paid off.

Come back next week for an article on my philosophy for debt payoff, and shoot me an email with any questions you may have.

Conclusion

Credit cards are a huge part of my ability to live a life that excites me and should be a part of yours as well. Like most things in the personal finance world, you shouldn't fear them. You should understand them. Examine your spending, get a card that matches your lifestyle, and always, ALWAYS pay it off in full.

(P.S. Those 7 credit cards aren’t hurting me. In fact, my credit score usually hovers around 775 and is on its way up)