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Adulting 101: Dealing with the Necessary Evil Known as Credit

Cash is king.

I have to start of the post this way because I'm not a fan of credit, especially credit cards. It enables people to do dumb things with their money (or lack thereof), and people drive themselves into piles and piles of debt. It's a hole you can very quickly dig yourself into.

That said, credit is a necessary part of life. Albeit, an annoying one. There's no such thing as "good credit", only bad credit, and bad credit is like that annoying relative who reminds you about that dumb thing you did at every holiday event even though it took place decades ago.



Before we begin, a bit of a disclaimer: I'm not a professional in this field at all. I've never worked at a bank, and my educational background definitely isn't in finance. I'm just an average guy who has gone through some things over the past few years and don't want you to experience the same pitfalls as me.

So, a little bit of my backstory and why I find credit to be really annoying. I have really great (and relatively wealthy) parents. After scholarships, they paid for my undergraduate schooling and car, leaving me no reason to have any sort of loan. Coming out of undergrad and looking to move to Bloomington with my soon-to-be wife, the landlords of the apartments we were looking at naturally wanted to do a credit check to see that I wasn't bogus with my money.

But I kept getting denied.

Knowing next to nothing about credit at the time, I quickly found out that basically had no credit history, and no credit history might as well be synonymous with bad credit. Luckily, my wife did have some student loans and a decent credit score, so she was able to sign the lease on our behalf. Knowing that we would eventually want to get in a house and have to get a home loan, I began my stint of getting the credit situation figured out.

Naturally, it seemed like the easiest, simplest thing would be to get a credit card. Surprisingly, for a person with zero credit history, it's much harder than you think. I got denied left and right, even by my own bank. (Which was incredibly frustrating because my wife and I, being savers, had thousands in our savings account.)

That's when I learned about the "magic" (sarcasm) of a secured credit card. As much as I like to poke fun at it, this little guy actually helped me out in a big way. Secured credit cards are aimed at folks like me, with no prior credit history, or folks who are in a "rebuilding" phase in their lives. A bank requires a security deposit of something like $50 and offers a super small line of credit, something like $100. As you prove yourself over time, they will continually up that line of credit, so I think mine now is like $700. (I honestly have no idea what mine is since I never use that card.)

Like I said in the beginning, I am not a fan of credit because people can incur debt really quickly, especially with credit cards. And credit cards have exorbitant interest rates, so I genuinely don't understand why people use them. It's common knowledge these things are evil, right?

So why deal with credit at all? Big purchases. And I mean BIG purchases. (While I can see why people would get an auto loan, my wife and I pay cash for our vehicles. Granted, my first car was given to me and had a high trade-in value.) I'm mainly thinking home loans. In a perfect world, we would save for our homes and pay them in cash, but it's not particularly feasible in a financial sense.

This is because we all need places to live. And unless we're living with our parents, we're paying rent toward a condo / apartment. That's pretty much money down the drain because you're not building any sort of equity. Rent money is never coming back whereas you'll at least garner some value from selling your house at the point when you move.

Anyway, this is the point where I feel the need to reiterate that I'm not a financial adviser, but I'm pretty sure most financial advisers would agree with me: pay as much as you can with cash.

Let's recap with some final bullet points:
  • Credit cards are a really quick way to dig yourselves into debt; avoid them
  • You have to have some sort of credit history when signing a lease, car loan, or home loan
  • If you have no credit history, a secured credit card is a great way to kick start that
  • With the exception of major purchases like a home or vehicle, avoid incurring any debt that would negatively impact your credit score (aka pay cash for everything!)
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