Phrenzie.com

I use credit cards a lot for convenience, savings and employment. The former is a given, but the latter two might not be as obvious.

Convenience
Of course, the convenience of whipping out a credit card for purchases, rather than carrying around a huge “mafia-like” wad of cash is invaluable to me. Even if I don’t carry around a wad, chances are that I’ll have to go to banks that will assess service charges, which adds up quickly. So there’s no benefit of using cash.

Savings
This is where I really begin to see some unconventional benefits. Say my credit card cycle ends on the 30th of each month. If I make a credit card purchase on the 1st of that month, I have about 40 days or more for my money to earn interest in my savings account before I take it out to pay my credit card bill (29 days for the cycle to end and about 11 days or so to actually pay off that balance). If I had to use my debit card or cash, I get NO interest benefit for paying on the 1st for something that I can wait 40 days to pay.

Employment
Maybe not the best term to use here, but I use credit cards that work for me, in the form of cash back. I might as well get a benefit from doing something I’m going to do anyway, such as purchase things. To an extent, it’s like getting a discount each time I make a purchase. I can use that cash to pay off other bills or, in some cases, use to get bigger discounts when renting a car.

There’s also the benefit of being able to track spending, using some of the credit card issuer’s features, Quicken, Microsoft Money or free online services like Mint.com.

Obviously, credit cards aren’t for everyone. It takes a certain level of discipline to pay off the cards each month. I never buy more than I can afford (if using cash).

What bothers me is that credit scoring doesn’t reflect this as much I think it should. I went to a credit counselor one time to understand scoring. Because I used credit cards, the balance showed up on my credit report, and negatively impacted my score, even though I paid off the balance EVERY month. You know what the best advice the counselors gave me was? “Pay off your credit cards.”

Well, if that wasn’t serious knowledge transfer, I don’t know what was. (

Anyway, I explained that unless I stopped using credit cards, then there will always be a balance, given how and when the credit card company reports my balances.

But more importantly, having a balance and running it up near the max is irrelevant. What is relevant is paying off the balances in full. The balance is also irrelevant because it doesn’t take into account income of the credit card holder. If I make $300K/year, have a $15K maximum limit on a credit card that almost gets maxed out, but paid off each month, my credit card gets hurt (if I made $20,000/year, then it’s a different story).

Disclaimer: I happen to have very good credit, so I’m not whining. But I do think that the way credit scoring is currently done doesn’t adequately reflect the risk of the credit card holder.