I’ve been looking at articles about credit cards and a lot of them say to keep credit card utilization under 30%, ideally under 10%. If that’s true, does that mean cashback should rarely be above $1-2 per month? Is cashback a strange way to lower your credit score in exchange for small amounts of money? I couldn’t find anything explaining the relationship between these two opposite mechanisms of credit cards. Thanks.
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What is in your best interest and what’s in the credit card companies best interest aren’t always aligned. It’s better for you if you spend less money. It’s better for the credit card company if you spend more.
There’s a difference between treating your credit card like a bank loan vs treating it like a debit card. If you live within your means, have multiple credit cards, buy everything with those cards, and pay the balances in full each month, you’ll get rewards and a higher score. The utilization only starts counting against you when you start carrying a balance from one month to the next.
Cash back and other incentive programs exist to make you want to use your credit cards more.
Sound financial advice about minimizing debt and such is a threat to the credit card companies.
They’re completely opposite things.
The credit card companies are literally willing to pay you (a relatively tiny amount) just to ignore that advice.
That said, there’s absolutely nothing wrong with using credit cards **RESPONSIBLY**.
Buy stuff on credit, immediately pay off the balance, reap the rewards, never pay insane finance charges.
Of course that only works if you only use a credit when you could just as easily pay cash. And most people can’t always say that.
Cash back and other incentive programs exist to make you want to use your credit cards more.
Sound financial advice about minimizing debt and such is a threat to the credit card companies.
They’re completely opposite things.
The credit card companies are literally willing to pay you (a relatively tiny amount) just to ignore that advice.
That said, there’s absolutely nothing wrong with using credit cards **RESPONSIBLY**.
Buy stuff on credit, immediately pay off the balance, reap the rewards, never pay insane finance charges.
Of course that only works if you only use a credit when you could just as easily pay cash. And most people can’t always say that.
What is in your best interest and what’s in the credit card companies best interest aren’t always aligned. It’s better for you if you spend less money. It’s better for the credit card company if you spend more.
There’s a difference between treating your credit card like a bank loan vs treating it like a debit card. If you live within your means, have multiple credit cards, buy everything with those cards, and pay the balances in full each month, you’ll get rewards and a higher score. The utilization only starts counting against you when you start carrying a balance from one month to the next.
1. Its best to use your credit card for every purchase possible. Not only do you get rewards, but you also get protection from liability. Anyone telling you to minimize usage is an idiot.
2. There is a component of the credit score based on utilization but the way to maximize that is to get the largest line of credit possible. If you have a $100,000 line of credit you’re never gonna go over 10% anyways.
3. Your credit score is irrelevant unless you’re currently applying for a loan. The utilization factor updates monthly. Even if you don’t have a large line of credit you could just minimize usage the month before you buy a car or house. No need to do it continually.
4. Credit card rewards are EXTREMELY valuable. The 2% back is just child’s play. By revolving through multiple cards you can get thousands in free travel a year.
PS: All this assumes you’re an intelligent and financially responsible person. Most of the “common sense” advice is based on the assumption that you’re an idiot and is therefore wrong if you’re not.
1. Its best to use your credit card for every purchase possible. Not only do you get rewards, but you also get protection from liability. Anyone telling you to minimize usage is an idiot.
2. There is a component of the credit score based on utilization but the way to maximize that is to get the largest line of credit possible. If you have a $100,000 line of credit you’re never gonna go over 10% anyways.
3. Your credit score is irrelevant unless you’re currently applying for a loan. The utilization factor updates monthly. Even if you don’t have a large line of credit you could just minimize usage the month before you buy a car or house. No need to do it continually.
4. Credit card rewards are EXTREMELY valuable. The 2% back is just child’s play. By revolving through multiple cards you can get thousands in free travel a year.
PS: All this assumes you’re an intelligent and financially responsible person. Most of the “common sense” advice is based on the assumption that you’re an idiot and is therefore wrong if you’re not.
If you are consistently paying off your credit cards and keeping other debt low, you’ll eventually get higher credit limits—typically well past what you would reasonably use for daily expenses.
So it’s not uncommon for people with healthy established credit to have credit limits of 20-30K but not use more than 2-3K/month with normal use, even with putting almost all expenses on the card for cash back or points. (Obviously amounts will vary depending on income and expenses).
If you’re just starting out or have low income, your credit limits will be lower as the credit companies figure out whether you’re a good risk or not. It takes a while to get to a point where you can optimize rewards without hurting your credit score.
If you are consistently paying off your credit cards and keeping other debt low, you’ll eventually get higher credit limits—typically well past what you would reasonably use for daily expenses.
So it’s not uncommon for people with healthy established credit to have credit limits of 20-30K but not use more than 2-3K/month with normal use, even with putting almost all expenses on the card for cash back or points. (Obviously amounts will vary depending on income and expenses).
If you’re just starting out or have low income, your credit limits will be lower as the credit companies figure out whether you’re a good risk or not. It takes a while to get to a point where you can optimize rewards without hurting your credit score.
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