Want to avoid debt and still build your credit? Here’s how.
Steering clear of credit cards to avoid debt may sound like a good plan, but be sure you understand all the ways your credit rating affects your finances. There are ways to ward off debt while building a strong credit history.
By Dennis Pershing, Chief Lending Officer
I read a lot about how younger Americans are steering clear of credit cards to avoid debt. Though admirable, rejecting plastic may have some unintended consequences. Credit cards build credit history, which is important when you get ready to make a big purchase like a home or a car. Few of us have the luxury of buying those big ticket items with cash, so we rely on loans. Without credit history, you are unlikely to get the best interest rates from lenders, or worse they may reject your loan altogether.
There is a way to honor the ideal of avoiding debt while also building your credit history, and that’s with a MIDFLORIDA secured credit card. A secured card builds credit, but the charge limit is tied to the amount in your savings account. You control the limit and have the peace of mind knowing that you cannot spend more than what is pledged from your savings account. That’s the no debt part. Many people may have the impression that a secured card is only offered to people who have had prior credit issues. This is no longer the case. Secured cards make sense for many people under many different financial circumstances.
Credit ratings affect our finances in more ways than just loan rates. Landlords pull credit, and auto insurers pull credit. In fact one way to lower your cost of auto insurance is through a good credit rating. So if you have little or no credit and you take out a secured card you can build a credit rating and possibly lower your cost of auto insurance.
Making travel arrangements with cash is virtually impossible. Hotels, airlines, and car rental companies all require credit cards as part of using their services. A secured card can get you a hotel reservation and still allow you to pay cash when you check out. The best deals for airline tickets are usually found online where paying with cash is not an option, and car rental companies do not accept cash payments to rent a vehicle.
Planning to buy a home someday? Even if you have saved up a sizable down payment, most mortgage lenders are going to want to see a good credit history as well. If you have little or no history, your interest rate on your mortgage could be higher than someone with a good established history. Even a 1% increase in your rate could cost you thousands of dollars over the life of a mortgage. Establishing a good credit history prior to buying a home can save you far more in interest than you could save toward a down payment.
All of these financial benefits can be accomplished with a secured credit card and all can be accomplished without going into debt for more than you have in your savings account. In short, if you really wanted to, you could pay it all off with your savings.
Not all cards are created equal, though. Did you know that MIDFLORIDA offers a rate as low as 10.99% on a secured Visa Credit Card? Many national credit card companies offer their best credit card customers rates around 17%, and people with little or no credit may pay rates as high as 25%. Our secured card is much better than that. Our secured card works just like any other credit card. You just cannot spend more than you have pledged from your savings account.
Consider applying online or stopping into one of our branches to talk to a MIDFLORIDA financial officer to learn more. Get started in building your credit rating. A good credit rating can greatly improve your financial well-being, and a good way to accomplish this without getting into debt is with a fully secured credit card.
I have worked at MIDFLORIDA since shortly after graduating from college. My goal is to improve the financial well being of all of our members by providing great service when and where they need it.
Dennis Pershing, Chief Lending Officer