What is the purpose of a credit card?

The 1% of elites will tell you that credit cards are used to earn money. Do I have your attention now?

While a credit card has multiple purposes, the most common use is for immediate gratification to buy things we don’t have the money for right now. Basically, to buy things we cannot afford!

Sure, some of us will use it to build credit; however, no one really thinks about getting a credit card to “build credit” or to leverage it to make money. When we turn legal age, we generally think: I’m of age now, let’s get a credit card like everyone else and get that new Macbook or PlayStation.

People who’ve done the research will let you know that the proper use of a credit card is to help build your credit so it’ll be easier to get mortgages or loans when you need them later on in life. But.. loans technically just put you in more debt, so the question is – how is that a good thing?

See, the purpose of a credit (when in the context of wealth creation) is to EARN money and leverage your credit to build your own assets/capital. Let’s break this down. 

Is it worth having a credit card?

1000% Yes! But… there are a few things you need to be aware of.

Personally, I don’t like to use my own money on anything. I mean, why use my own hard earned money when I can make money using someone else’s? If you’re not thinking this way yet, we need to chat about the wealth mindset. 

Credit cards can build your credit, yes, but we’ve made over $6,000 from credit cards in the form of cashback, rewards, or just straight up cold hard cash. And it wasn’t my money…… 

Sure, we have to pay back the balance but if I would’ve JUST used my own money, I wouldn’t have gotten $6,000+ of goodies. When we look at this way, we’re basically spending FREE money… so, why would I ever use my own money?! 

Now, I’m not talking about credit card churning. This refers to where you open up a new credit card only to get all the rewards, then close the account and do it all again. Even though it’s legal, it’s not exactly lucrative and will take a massive amount of time. 

What I am saying is find credit cards that suit your lifestyle so that it becomes easier to integrate into your routine. If you’re already buying groceries, is it such a terrible thing to use a credit card and then transfer the money right back while earning some cash back dollars?!

What are 4 advantages of credit?

I used to be the person that thought credit cards were evil, I literally told my bank to NEVER increase my credit limit because I think it’s a scam….. (face palm) seriously, who was that person and how much opportunity did she miss out on? 

1. Leverage!

Do you know how exciting this is? Just me? Okay, I’m cool with geeking out on that. Leverage sounds like stuffy jargon, but if you think of it as a way to maximize the benefits from someone else’s money while being disciplined not to accumulate any debt… You really do get ALL the rewards and none of the downside. 

2. Build your credit score

This one is still important because we live in a world where we’re measured by how well we use other people’s money (based on the bank and government’s standards). BUT, it does truly help when applying for car loans, personal loans, mortgages or more credit cards. Really for ANY type of situation where you’re in need to borrow money. 

3. Endless Choices

The amount of credit cards out there is endless. The only criteria is your income and your credit score. This means you literally get all the benefits of travel, cashback, Amazon rewards, restaurants, gas, groceries, the list goes on. 

4. Credit History

It may seem weird that you need to borrow money first in order to borrow MORE money, but it’s the way our world works. The more credit history you have accumulated, the more trustworthy you are in the eyes of the bank. 

If you have 0 credit history (as in you’ve never owned a credit card) it’s actually HARDER for you to get a car loan or mortgage. Having no credit cards sounds responsible, but it can really bite you in the back when you need it the most. The banks want to see that you’re responsible with their money (as a way to test if you can handle more), because they know that you’re going to need them sooner or later. 

How do beginners use credit cards?

Start with a basic credit card that offers rewards that fit your lifestyle. For example, if you enjoy dining out, try for an American Express Cobalt (it’s rated #1 in 2021 for best overall rewards). You earn extra points for restaurants, take out, and you can even use the rewards to pay down your credit card statement directly from the app – it’s simple and effortless. If you enjoy travelling, consider a travel card to start earning travel points. 

If you’re uncomfortable or scared to use your credit card, start with something small like putting your phone bill, internet, or even just your Netflix subscription. Just because you have a limit of $5,000 does NOT mean you have to use it all. Always remember to use what you’re comfortable with so you can easily pay back the balance 100% at the end of the month. 

Pro Tip: If you have no need to use your points immediately, save them! Be sure to check the fine print (terms & conditions) to see if those points expire. If they don’t, save them for a rainy day! I’ve done this and it was great knowing that I’ve stashed away enough points for a whole month’s worth of groceries! 

Once you get comfortable with using your credit card, you can start adding more recurring bills. Generally if you have a rewards or cashback card, the more you use, the more you earn. But be careful not to spend what you don’t have in your bank account. 

A more advanced way to leverage your credit card is to get more! I have several credit cards and all for different purposes. Some I use only for gas and at certain locations, others are for access, such as Costco Capital One (because I love bulk shopping and it’s one of the best mover savers EVER – more on that in another blog), or WestJet Elite Mastercard (gets access to airport lounges – you can’t put a price on peace of mind, stable wifi, and free food. Okay, maybe mostly the food, lol). 

Generally, we earn 2-3 grocery trips to Costco per year on cashback. I never pay for car washes anymore because it’s all paid for through points. And every time I’m short on my cashflow or feeling stingy, I just use my rewards to pay off my credit card balance because I’d rather spend that money on my investments and stocks. 

There is SO much more about credit cards that I can’t possibly fit into this one blog post, so I’ll be doing another credit related article specifically about balance transfer credit cards. This is the crown jewel of credit cards in my opinion.

I know it can get confusing, but fear not. If you would like more help to get a better understanding of credit cards and how to leverage them for yourself, reach out and book a wealth chat with me. I’d be happy to geek out with you over Zoom. 

Credit cards can be your best friend or your worst enemy, the choice is yours. 

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