How many of you out there use a Credit card for your investing BIZ or personal life?
My wife and I don't use them because of the Dave Ramsey movement, but now that we are doing well with money I might consider it? what are your thoughts?
If you don't spend money you don't have then I will almost say it is stupid NOT to use credit cards.
Much more convenient than carrying around a ton of cash, gives you a nice log every month of all your purchases, is a 30 day interest free loan if you don't carry a balance and every card these days has some kind of reward program where you can get stuff just by making purchases you would anyway.
Some people do very well with miles and some will work great deals on other rewards that they use a lot. I like Discover where you can get discounted gift cards. They have a lot of $25 cards for $20 in points. Don't need a math degree to see that you get an automatic 20% return cashing in the money they gave me for no obvious reason to start.
Even if you don't do anything amazing if you have a card that pays back 1% and all you do is take a dollar for dollar statement credit if you spend $1,000 then you only need to pay $990 to pay off your balance.
With some store cards like Home Depot and Lowes if you make a purchase above $299 you automatically get at least 6 months of interest free financing as long as you payoff the balance when the promo period is over. So say you make a $400 Home Depot purchase and instead of paying cash you used their credit card and put the $400 in a "high yield" savings account getting like 0.7%, well at the end of 6 months you made $14 and can pay the balance off in full.
These examples are about the lamest possible way to use the rewards programs or utilizing the free financing but even if you only did this level there is no reason to NOT take the free stuff and/or money these companies want to give you.
Also of course having, using and then paying off cards every month will build your credit up much more than someone without any cards that pays cash for everything. In fact the 2nd person will probably have pretty mediocre credit.
Finally of course the life line they can provide if something bad does happen. While you don't want to just spend money you don't have if you did have 1 person lose a job and income is really tight for a few months you have more options. Maybe you do tighten things up but you still have like a family of 4 and layout like a $100 a week for groceries. For a couple of months when income is low while that person gets a new job it might look nice to only paying $10 at the end of the month than $400 throughout the month.
Credit cards are really only a problem if you use them to buy crap you don't need and can't afford if you did need to use cash. If you are just a little disciplined then there are a ton of benefits with no particular drawbacks.
@Bill G.
I have always been under the impression that having a low current balance to max balance ratio was beneficial for lending. This shows that you do not excessively use your available revolving credit and that you have a buffer to absorb emergency spending. This would indicate a higher available balance is a good thing to have. Closing accounts supposedly can impact your credit score as well. I am not familiar with lending on a massive scale for REI, this may only apply to personal lending.
This is somewhat true as well, to a point. There is a difference in underwriting secured and unsecured debt, secured personal loans and RE, then there is the commercial arena.
Having A credit card with a high limit is a good thing when that account has not had high balances beyond 30 days, the borrower may have put 10K on I and paid it off 5 days later, doing that once probably will be overlooked. Doing it regularly can tag the average balance as a liability for qualifications. Using up to a third of the limit is much as you mentioned and shows a payment history, is a plus. Having one card is better than having 8!
The issue here is that a card is in the company name, it may not even show on his personal credit, but what is going on is that it can appear, later on, looks like an attempt of credit card fraud, holding a credit card in the name of a non-existent company. The company is a separate entity, just like another person, why would you hold Uncle Charlie's credit card after he passed away? To build your credit because you were a guarantor? I don't think so. Now, while there really isn't a fraud issue so much due to his being a guarantor, ultimately he would be responsible, the matter looks fishy, why hold a card you're not being reported on?
State law has requirements to be met in the "winding-up" of a business and closing it, paying the liabilities and closing accounts is a requirement, that is uniform across the country. The company may not be considered closed until these matters are concluded.
No party that extends credit, I don't believe, would open an account in a company name that they would not open with that principal, in other words, if he can get credit in a company name he should be able to have that line in his personal name or another name that is properly registered. If things haven't changed, it wasn't mentioned.
Not using the card, it will become a dormant account and must likely be closed anyway, state laws cover dormant accounts. In a shorter order, the card will hit a fraud watch list, inactivity can do this as the CC folks assume it can be a lost card.
There is no up side to keep this card open. The OP needs call the company and change the name, if they will. They will most likely just want a new application and a request to close that account, or list it on the application with a notation of closed. If there had been an outstanding balance, a name change might have been easier.
FICO scores are proprietary and the details of the formulas used are not public knowledge, those who make claims as to improving scores may have the basic techniques of carrying debt and paying as agreed, high available credit being limited, but I doubt anyone outside the system knows the weighting and applications of what type of accounts effect a score. Since we have such limited information, and even if we had all his credit history, no one here can say how the FICO score may change if it changed at all. But what I mentioned above applies.
I'd bet that having a card closed by the company without it being requested and a reason given could have more of a negative impact than keeping a dormant account. Companies are closed everyday, accounts are closed everyday, it can't be seen as a credit issue so much as people retire, sell their companies and move on.......everyday.
Last thought, the only thing I can think of is that when the card was opened, the income of the company may have been used, that income may then be reduced, a new application can cure this by stating other income (if it's true). Having less income will effect the line of credit available. He needs to call the credit card company, IMO. :)
It's great to get those Home Depot or Lowes CC interest free for 12 months; it's "free" money. Just make sure you have a sound exit strategy when loading up on CC debt, or any debt as a matter of fact. That way you can unload the property and pay down the bills if the crap hits the fan.
If you don't carry a balance,it's like getting free money plus you get extra warrantees.
I use the citi double cash Mastercard. 2% cash back on everything, no annual fee. The chase ultimate rewards credit card is also good for 3% back on on-line home Depot and Lowe's purchases, including appliances and flooring, made through the chase credit card portal. It adds up!
Credit cards are only ever bad if you don't know how to use them. You'll need credit if you want to ever apply for a conventional mortgage. Get a c-card only if you know you can discipline yourself. Start off by never spending more than you have...
This was in reference to your personal life...
As for CC in your real estate investing career...I wouldn't know what to tell you.
Yes, so long as you have discipline, credit card is good.
1) Those perks (e.g. rewards) can add up. Was able to get some free flight trips from time to time. My friend help me too.
2) Much easier to keep track of your expenses / audit trails. Most credit cards have expense reports, and just in case you lose your receipt, at least it shows up on your credit card statement.
#2 is the more important perk.
Never had troubles using them. Most importantly, they should be used responsibly.
Always pay your balance in full each month. While doing so, it will have positive effect on your credit score.
Additionally, it's always good to enjoy cashback or travel rewards.
Absolutely - if there is no additional fee to use a CC with a vendor, then we put it on the card. It defers the payment, we earn (marginal) interest on our funds, and we get 1% cash back on the card we use for business - just paying the insurance on our rental portfolio each year yields a decent return (and we self-escrow the funds for insurance, so the money is there to make the payments). Same for personal, but 1.5% cash back. But we pay them off fully each month without fail.
As @Bill Gulley said, you do want to watch your balance on any given card and on your portfolio of cards because it can impact your credit score and your ability to take loans if you let the balance to total credit line ratio get too high. We strive to stay below 10% of our total credit line on the portfolio of cards. If I see we are getting too high, I go ahead and make a payment a little earlier.
Andy
@Matt Davydov & @Andy Webb The resurrection of an old post! Crazy to read my thoughts from 3 years ago.
We now have about 5 CC cards between my wife and I and use them on our rehab projects to earn points.
They sure are handy!
Credit cards definitely have their perks! Just like few other people said, you don't want to charge more than you have in your bank account. You also don't want to open too many credit cards. On the flip side, it is bad for your credit if you cancel a credit card - better to just not use it.
@ Troy Fisher I believe in using credit cards however not for pleasure. Only for business purposes in a sense. If I do use one for pleasure I treat it like American Express pass the balance in full in 30 days where you will incur no interest. That way my score stays healthy and I am able to get awesome perks wherever I go.