Finance Gets Personal

I’m sure you know someone like this:

“Credit cards are great! I use mine for everything and pay it off each month. I flew to Tahiti last March with the airline miles I earned and I get $500 cash back from my Discover card at the end of the year. I know some people can’t handle credit cards, but they can be used to your benefit if you do it right!”

Admittedly, I am not one of these people. Maybe someday I will be, but I don’t trust myself to pay everything off and not spend more than I would otherwise.

One of my coworkers is, only she takes it to a whole new level. Every few months, she will open an American Airlines or Continental credit card that offers 20,000-40,000 airline miles for signing up. She’ll make the required number of purchases with the card and keep it open long enough to get the miles. As soon as the miles are transferred to her frequent flier account…bam!, she closes the card. She then has her husband do the same thing.

After waiting a few months, she calls the credit card company and applies for the exact same card. Makes her purchases, gets the miles, closes the card. Repeat.

She now has enough miles for her and her husband to fly to the Caribbean every six months for the next three years.

Crazy? I’m not so sure. The only drawback I see is that it might affect their credit scores by opening and closing cards so often. But since only 10% of your FICO score is determined by new credit, it shouldn’t affect it too much.

It’s really tempting to open a card for both my husband and myself and use the points to fly us somewhere for our fifth anniversary next year, but I think I’ll stay away for now. I can’t believe I’m quoting Dave Ramsey here again, but, “When you play with snakes, you’ll get bitten.” And I can’t afford to take any chances.

Everyone knows that having a high FICO score is key to getting low interest rates and can save you thousands of dollars. But what if you don’t need to borrow money? Financial guru Dave Ramsey calls the FICO score an “I love debt score,” and suggests manual underwriting for mortgages.

I maintain that there are at least five good reasons why you need to have a good FICO score, even if you never borrow money:

1. Renting an Apartment. Many landlords check credit reports now, and a low or nonexistant FICO score means you might be required to hand over a hefty deposit, pay a higher rent or get a cosigner, if you’re not flat denied.

2. Getting and Keeping a Job. Some industries now check applicants’ credit reports prior to offering them a position. This is especially true for financial, military and other government positions. Your credit score can also be checked regularly after you are hired as a basis for retaining employment.

3. Obtaining Low-Cost Auto and Home Insurance. Insurance companies typically use data from your credit report in determining your rates.

4. Getting a Cell Phone Plan. Yes, you can get a prepaid phone or a “deal” from one of those “we don’t check credit” places, but the main carriers check your credit and will deny you if they don’t like what they see.

5. Turning on Utilities. If your score is bad, you might have to pay a deposit, get a co-signer or even pay higher rates.

So, boys and girls, keep that score up!