Finances

Thinking of Long-Term Goals

Last night I fell asleep thinking about my long-term goals. Eventually I would like to own my own home and perhaps build a small real estate portfolio in order to provide yet another stream of passive income.

I’ll have to build my credit if I want to accomplish that.

I don’t like credit. Credit makes it far too tempting to overspend and the interest rates charged…well, I’m cheap.

That said, a good credit score would open doors and opportunities for me that otherwise would be closed should I decide to pursue home-ownership and real estate investments.

I’ve been discussing this fact with my beloved Auntie, who has become my financial counselor as of late. She offered a suggestion that I would like to run past you in order to hear your opinion.

Auntie pointed out that credit cards do not charge interest if you don’t carry a balance. She shared that she keeps a credit card that she uses to make her everyday purchases that she pays in full each month. This not only helps keep her credit in good standing, it provides a layer of protection in the event her card information is ever stolen, since she never uses her debit card. This keeps the money in her checking account safe.

I have no need for credit at the moment; living beneath my means the way I do means that I don’t require it. That said, I know from experience how challenging it can be when a credit card thief empties your primary bank account.

An extra layer of protection would be a nice thing to have. I am a firm believer in hedging my bets when it comes to finances and I have become extremely cautious about using my card in unfamiliar stores. I carry cash with me to avoid using my card these days as a result.

If I took Auntie’s advice I would not only gain a layer of financial protection, I would begin building my credit score. This would allow me to secure credit should I require it in the future to achieve my long-term goals. I could use the card for my everyday purchases, budgeting accordingly as I already do, then pay off the balance each month. This would allow me to avoid any interest fees. At the most, I would have to pay an annual fee on the card until I figured out a way to eliminate that.

What is your opinion? Do you think it would be a good idea to apply for a credit card and use it in this manner? Please share your thoughts in the comments below.

15 Comments

  • Karen Richardson

    Annie,
    I use a no fee credit card that pays me to use it for nearly all my purchases. I get 2% back on every purchase. It may take a while to build your credit before you can get a card like that but it is great. I never pay interest as I pay it in full every month. I agree with your wise Auntie’s advice. You are so thoughtful about your spending that I can’t imagine that you would spend more because of using a credit card. I destroy bank debit cards. The bankers aren’t too pleased when they have to look up my account information but I don’t trust carrying or having in my home debit cards. I use very little cash but always have some cash and an emergency $100 bill in my wallet. Building credit takes time. As you always do, research your options carefully before applying for a credit card. Good luck!

    • Annie

      Thanks for your comment, Karen. Building credit is part of my long-term goal, so I have plenty of time to research my options. I have a debit card that gives cash back on purchases but I am cautious about using it these days due to card thieves so I am creating the cash habit. A credit card would reduce my concerns, but I have to think on this a bit before I decide.

    • Annie

      I don’t know, Kelly. If that does happen to be an issue, I can always wait until my income increases, since I do plan to increase my income over time. I am still in the research phase so if that is a roadblock I will know that I need to clear it in order to proceed. Thanks!

  • Kelly L Barrington

    The same question on buying a house when you monthly income is low and your writing income is sporatic? I’m not trying to be a Debbi downer. I was just wondering your plan as banks and lending institutions do not like to lend for a dwelling when the cost is below a certain value. We bought our house at $51,000 and had a hard time with financing it bc it was such a small loan according to the bankers. It felt like more than enough for us to pay back.

    • Annie

      Hi Kelly!

      Establishing credit, as well as owning my own home, is part of my 20-year goal. I expect that my income will improve over time; I don’t know how it will improve, but I am taking steps at the moment towards that. For instance, I am researching various ways that I may be able to organically grow the readership of this blog over time, as well as brainstorming new book ideas that don’t duplicate my previously published content. Between this website, my increasing dividends, my book royalties, and my day job along with anything else I come up with I have no doubts that my income will increase with time.

      I just don’t know the details yet. Make sense?

  • Linda Sand

    You could invest some of your savings for a prepaid card that would let you begin establishing credit. When you get to the point of getting a regular credit card look for one that offers cash back. By charging all our purchases then paying it off every month we actually make money. One of our cards is an REI card which gives us discounts on things we buy there in addition to cash back–not that we buy much there since we stopped camping.

    • Annie

      Hi Linda!

      I’m actually leaning towards a prepaid card. They have a lower level of entry and it wouldn’t hurt me one bit to have a few hundred dollars stashed in yet another account somewhere. That would give the issuing bank a bit of assurance while allowing me to build my nest egg as well.

      This is still in the deliberation stage, of course. I’m not in any hurry but I do suspect that if I begin establishing a credit history that it will benefit me when I am ready for future stages in my long-term goal.

  • Deirdre

    Agree with Karen about the cashback credit card. Someone like you who is very disciplined with your finances could really make the most out of that.

    • Annie

      Thanks, Deirdre! Your vote of faith means a lot to me. I’m a bit intimidated at the thought of this, to be honest.

  • Johhn Grebe

    I take a bit of a middle of the road approach. I have a credit card which I use when I shop online or buy gas for the convince of paying at the pump. But I use cash when I buy things in person. Personally I do not trust debit cards as they lack the safety buffer in case your card info gets stolen as it comes directly out of your checking account. As I see it, using the card gives me cash back which I always pay in full at the end of the month. I know some people would call me dumb for paying full price in cash instead of getting 1-3% back (depending upon the type of purchase) but personally spending less is more important to me. While I try to be mindful with everything that I buy, I know numerous behavior studies show that people tend to buy less in stores when they pay in cash over a credit card.

    • Annie

      Hi John!

      I learned the hard way about the dangers of using debit cards. I have seriously limited using mine since. I keep a small amount of cash with me but I will use my debit card if I know I am in a safe location (like the checkout counter at work).

      The studies are correct about spending less when you use cash! Many nights I would like nothing more than to buy a quick microwave meal after work or a drink to take home with me, yet many times I don’t simply because I don’t like spending my cash. I consider each one of these skipped purchases a major win for my long-term goal.

      If I acquired a credit card this year it would begin the slow process of building my credit score. I may not need it; knowing me, I may just save up enough money and find a cheap mobile home that I can pay cash for, or even a really cheap home.

      But I MIGHT need credit for that. Even if I managed to acquire my first property with cash, I may want to use credit (and the first home for collateral) to invest in a second. I don’t know yet. Something tells me to start working on my credit this year, just in case.

  • Melanie

    Definitely get a card. Sign up for automatic bill pay for one bill that you pay every month (such as a utility). Once you’ve signed up, cut up the card and never use it again. You just pay the credit card each month instead of the utility, and boom….you’re building your credit. 🙂

    • Annie

      That’s a BRILLIANT idea, Melanie! Oddly enough, my aunt suggested something similar when she posited the initial idea. As she pointed out, while I may not need credit at the moment, I may want access to it when (and if) I decide to enter the real estate market.

      Thanks!

  • Sam

    A good credit score will save you money and help you land a better paying job. Your credit is checked even if you are not applying for credit. Utility deposits are based on your credit score, insurance rates (of any type, car, home, renters, even life) are affected by your credit score, and most employers will not hire without a decent credit score (they want employees that are responsible).
    That being said, a credit card can be a slippery slope. If you go that route, try using it in reverse, by that I mean, don’t use it knowing you will have the money when you get your bill. Put $50 (or any amount) in your “hidey hole” and ONLY then can you use the credit card that amount or less. Much like the envelope system. The best of luck to you.