Nearly five years ago, I applied for my first credit card. It was the Citi Dividend Platinum card (still available here). Much like my academic career, I poured over websites and researched credit card companies to find the best rewards. I had no established credit history, but I believed in building it – here was my first step.
Opening up that paper mailer was an honor because the bank entrusted me with a credit line (~$1,000, if memory serves me)
. The platinum card sparkled against the light, and I felt like one of the few and proud. Most college freshman that I knew didn’t have cards or lines this large. I was rewarded with powerful bonuses and cash back that made me value the card. Why would I use cash or a debit card, when I could make 2 to 3 percent back on my purchases with this credit card? I saw the card-less as suckers, and missing out on extra money.
The long con is more insidious. For the first couple years it was a hard and fast rule: Treat the credit card as cash and only spend what was in my checking account. I was the epitome of reserve and control. Occasionally, I talked to friends about getting a credit card – the necessity of it. How could you not take advantage?
Before I knew it, I was looking for a better rewards card. The Hilton credit card by American Express (Amex) advertised a sweet bonus – a free night. Once I received the award and looked for places, it was my first taste of discomfort. The points didn’t really amount to much and the places were hardly aspirational. Amex was an aspirational brand, though. Maybe they had something better?
Within a couple months, I applied for a Premier Rewards Gold Card. With no annual fee for a year and benefits that occupied pages and pages of documentation, this card seemed even better than the rest. Putting this in my – previously bulky – wallet was like carrying salvation. I was safe from bad purchases and broken down cars. Amex would be there for me.
As the annual fee rolled around, I canceled the Gold card and applied for another. I wasn’t ready to plop down ~$125 per year. But, I was searching for a card to fit the bills. I applied for the Blue Cash card, which offered incredible cash back for grocery store shoppers and gas. The card came with no annual fee, too. With friends like these, I was hooked on Amex.
I became an evangelist for all things charge and credit card. Look at all these benefits! All the while, an eerily stereotypical spending pattern emerged. My income just wasn’t enough for the amount of spend. More importantly, I was buying things I didn’t need (i.e., a Specialized $1,000 road bike, surround sound system, and upgrading my cell phone every 6 months). It’s one of the most embarrassing purchase patterns of my life. The debt and spending was fueled by a lot of factors, but my emotional well-being seemed like the common denominator. It felt tied to my emotional health – like never before. Feel crappy? Spend.
After I became healthier, my spending leveled out. Around this time, I started monitoring CreditKarma and Mint religiously to check my credit scores and transactions. Even though I was spending less, I was still comparing and applying for credit cards. The Chase Sapphire card seemed like the best of breed. I applied and received it. Finally, a no annual-fee card with the benefits of an Amex charge card. This became my favorite card. I felt like canceling everything else, but I couldn’t. By doing so, my credit score would plummet. The amount of credit accounts and duration are two important variables. It was a Catch-22 and the cards won.
Over the latest semester, I traveled constantly, and it made me consider a travel rewards card. After pouring hours into research, I chose the American Airlines credit card by Citi with a 50,000 point bonus. The bonus was applied to my frequent flier account and will be used for some adventure down the road.
The Present and Future
A 2012 study published in the Journal of Consumer Research found shoppers who charge an item to their credit card focus on the benefits of the purchase, while those who pay cash focus on the cost. (Source)
Nowadays, I have just under $30,000 in credit limits. There’s no doubt that this is established to encourage uninhibited purchases. This isn’t free money, and there’s nothing special about this number. As I work to abolish my debt, I am looking to lower this limit and close some accounts (even if it hurts my credit score). Four credit cards feels like too many. That might be influenced by my minimalistic tendencies, but I think that reducing the number will encourage greater frugality.
I didn’t write this to exclaim the wrongdoings or ill-conceived nature of credit cards. Every now and then I might highlight a credit card or new bank offering on the site, as I do believe there are opportunities. You can certainly be rewarded for owning a credit card and managing your spending. If there’s one lesson to be learned: The amount of money in your bank account is a distraction to the fundamental, dangerous patterns of some credit card use. Watch out for the patterns and be careful. Don’t be afraid to ask for help if it gets out of control.