You only need credit cards for one thing……..
In order to borrow you need big Fico scores. The Fico mathematical scheme used to determine your credit worthiness is dominated by credit card usage. Responsible and timely use predicts future behavior for lenders. You also need a mixture, such as mortgage, car loan, personal loans, to top your score off.
But the most important is credit cards. And the longer you use them and pay them off the higher your scores. however, the total amount of usage has to be less than 20 % or so to get and keep those higher scores which lenders use to grant more and higher loans. For instance:
You borrow 10000 on a car, 120000 on a house, Lets say 5000 on 2 or 3 cards and make every payment on time for over 5 years then you end up bumping 800 FICO. Notice no mention of income. Credit card companies usually take your word for it.
But this only one way. For me, I simply had one card with a 1300 limit, borrowed 1000 cash, and refinanced an old car paying them all off in 3 years. There doesn’t seem to be any rhyme or reason to explain why borrowing less than 10 grand, paying it back on time for less than 3 years during a credit crash would generate such a positive result but this is how it works.
Now my oldest card which I use for my Verizon internet service and pay off every month has an interest rate at 29%. (This was Wamu bought by Chase). My rewards card from my credit union charges 15% I use this for everyday expenses and pay it off every month and get 1% back. My third card and last for ever, is from Simmons and charges 7.2%. (Guess which card I will use for emergencies?)
Now that I’ve established great credit, I really no longer need credit cards. Now I can use personal loans secured at 5%, unsecured at 9%, by putting the cash into my checking account and using a debit card everywhere visa is excepted.
Why pay these guys anymore than you have to?
However this disaster-in-the-making plays out, it’s obvious that 14.7 percent interest rates are not going to stimulate retail purchases, even though that has always been the ostensible point of credit cards. The inflationists will probably say that loan-shark rates on plastic represent just one more cost that is going up. But because no one – even Las Vegas casinos — can actually afford to borrow at such rates for more than short stretches of time, we would argue the opposite – that credit cards designed to stimulate spending are fast becoming a deflationary pressure point, burdening shoppers with real rates of interest that are more than triple what the average hedge fund is returning these days. Under the circumstances, Joe Sixpack will be biting off more than he can chew if he opts to make only minimum payments for perhaps three or four months.