Credit Card (Photo credit: 401(K) 2013)
In the early 1980s (ooops, I am disclosing my age) when I first came to America, I hardly heard of credit cards. In the Philippines where I grew up, the only “credit” being extended are loans from banks to fund real estate purchases or businesses. But, we had our own credit card version – we fondly like to call “gives”. “Gives” is basically installment payments. An agent of a retail store would come to a person’s work place each payday and collect the money owed for a purchase of jewelry or a dress. Usually the item purchased is paid in 4 to 10 “gives” (or 4 to 10 paydays). If you are an Adult Filipino reading this, you know what I mean.
After a few months in America, I had my first introduction to “Credit’. I decided to buy a car. I was surprised to find out that I could actually buy a car with only $800 down payment. The balance was to be paid by a loan. However, I was denied the loan because I had no credit history. The car dealership suggested that I get a co-signor. What is a co-signor? Well, someone that has a good credit and who will take over my loan payments if I become delinquent. My cousin’s husband boldly and kindly co-signed for me.
I started building my credit with the car payments, then I got a 76 gas card, a Broadway (now Macys) credit card, and finally a Visa credit card from my bank. Now, I am proud to say I have a credit score above 800 and made many “Big Item” purchases with my credit.
There are many reasons why we need credit.
Credit provides convenience. Just today, I was at Vons buying flowers for a friend. The only cashier that was open had a long line. The florist cashier was not open, but agreed to ring me up if I pay only with credit card. Yipee…I was in and out in 5 minutes and did not have to fall in line.
Credit allows you to buy big ticket items, you normally cannot afford. With credit I was able to buy houses, televisions, cars and many other items.
Credit provides access to the lowest interest rate (If your credit is good). I always had access to the lowest mortgage interest rate because of my good credit. With low interest rate, my monthly mortgage payments are low and my purchasing power is higher.
Credit allows you to earn miles and points for your credit charges. I have flown to Europe on my credit card points alone.
Purchases on Credit have insurance protection. Once I broke the crystal vase I bought with my credit card. I reported this to my credit card company and they reversed the charges.
Payment on Credit protects you from unreliable sellers or defective merchandise; If you have defective merchandise, the credit card will reverse the payment and not pay that seller.
So, if you don’t have credit, yet! Build one now! You don’t know how? No worries, my next blog will be about HOW TO BUILD YOUR CREDIT.