Popular credit advice that's nonsense

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Vattené
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Re: Popular credit advice that's nonsense

Postby Vattené » Mon Sep 28, 2015 3:31 pm

kcm7 wrote:Just heard another one this weekend.

A friend was complaining that she was "stuck" with a $95-a-year airline card because it was her first card, and "you're not supposed to cancel your first card." Does she at least use the card for benefits and miles? Nope. She's afraid to use credit for purchases (only uses debit) and doesn't fly that airline anymore. Has had the card for three years -- that's $300 worth of annual fees.

I wonder what possessed her to apply for it in the first place. I guess she flew the airline at one point and, if so, maybe she used it for purchases with the airline, but she still had no intention of using it rewards and was fine paying $95 a year.
Even when I was completely ignorant of rewards I never would have signed up for anything with an annual fee just to "build credit."
-Vattené
FICO-8:
EX - 809 (11/16) | TU - 803 (11/16)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now


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CarefulBuilder14
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Re: Popular credit advice that's nonsense

Postby CarefulBuilder14 » Mon Sep 28, 2015 7:01 pm

Vattené wrote:
kcm7 wrote:Just heard another one this weekend.

A friend was complaining that she was "stuck" with a $95-a-year airline card because it was her first card, and "you're not supposed to cancel your first card." Does she at least use the card for benefits and miles? Nope. She's afraid to use credit for purchases (only uses debit) and doesn't fly that airline anymore. Has had the card for three years -- that's $300 worth of annual fees.

I wonder what possessed her to apply for it in the first place. I guess she flew the airline at one point and, if so, maybe she used it for purchases with the airline, but she still had no intention of using it rewards and was fine paying $95 a year.
Even when I was completely ignorant of rewards I never would have signed up for anything with an annual fee just to "build credit."

I am really happy about the fact that my first card, Freedom, is one that will probably remain useful for a long time.
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
SD: Arrival BrooksBros BCE ED IHG
Letting new accounts cool off since May
Really not sure what I'll add next or when

kdm31091
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Re: Popular credit advice that's nonsense

Postby kdm31091 » Mon Sep 28, 2015 7:14 pm

CarefulBuilder14 wrote:
Vattené wrote:
kcm7 wrote:Just heard another one this weekend.

A friend was complaining that she was "stuck" with a $95-a-year airline card because it was her first card, and "you're not supposed to cancel your first card." Does she at least use the card for benefits and miles? Nope. She's afraid to use credit for purchases (only uses debit) and doesn't fly that airline anymore. Has had the card for three years -- that's $300 worth of annual fees.

I wonder what possessed her to apply for it in the first place. I guess she flew the airline at one point and, if so, maybe she used it for purchases with the airline, but she still had no intention of using it rewards and was fine paying $95 a year.
Even when I was completely ignorant of rewards I never would have signed up for anything with an annual fee just to "build credit."

I am really happy about the fact that my first card, Freedom, is one that will probably remain useful for a long time.


I'm similarly glad my first unsecured card was Discover! I will keep it forever, pretty much.

Vermonster
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Re: Popular credit advice that's nonsense

Postby Vermonster » Tue Sep 29, 2015 9:39 am

Actually that reminds me of another one.

"It is better to close a card than to have it be closed by the bank."

In '07 I accidentally signed up for a MTV U card. Half my fault, half the fault of the Citi rep that told me it was "just a survey." Anyway the card shows up at my parents house and my mom freaks out. I say leave it open and build credit. She is convinced that if I let it be inactive the bank will close it and it will ruin my credit. To this day I can't se anything on a credit report that mentions how it was closed.
Chase Freedom $9k~~Chase Sapphire Preferred $6.5k~~Amex Blue Cash Preferred $12.4k~~Citi Double Cash $4.7k

Kevin86475391
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Re: Popular credit advice that's nonsense

Postby Kevin86475391 » Wed Sep 30, 2015 8:01 pm

kcm7 wrote:A friend was complaining that she was "stuck" with a $95-a-year airline card because it was her first card, and "you're not supposed to cancel your first card." Does she at least use the card for benefits and miles? Nope. She's afraid to use credit for purchases (only uses debit) and doesn't fly that airline anymore. Has had the card for three years -- that's $300 worth of annual fees.

Maybe she could consider PC-ing to a no-annual fee card with the same lender to preserve her account history but stop paying the fee.

kdm31091 wrote:
CarefulBuilder14 wrote:I am really happy about the fact that my first card, Freedom, is one that will probably remain useful for a long time.


I'm similarly glad my first unsecured card was Discover! I will keep it forever, pretty much.

My oldest card is my Target store Red Card, which maybe I'm just biased, but I think it's about the best store card out there. 5% off on every purchase, pharmacy rewards linked to it, and no annual fee. Plus easy online account management. I think the APR is probably high, but I PIF anyway. I'd absolutely still happily apply for it today if I didn't already have it.

Of course I also happen to really like Target and shop there almost weekly.

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Re: Popular credit advice that's nonsense

Postby CarefulBuilder14 » Thu Oct 01, 2015 1:11 am

It's not often given explicitly as advice, but I see a habit among some credit geeks that has come to strike me as relatively fruitless. It's come up in discussion before.

Some people are what I'll call "cash back empire builders". The general behaviors are:
1. No or very few cards have annual fees. The person is not a churner or bonus hunter by any means. Not particularly a utilization micromanager, but maybe a moderate CL fanatic.
2. Store cards that might offer a reasonable value to a regular customer, but in an excessive number.
3. Lots of cards with specialized category rewards. Lots of 3%-5% categories for things people don't spend much money on - or very low reward caps for useful stuff. Forget earning a lot on a major spend category by paying an AF.
4. The willingness to monitor 20+ cards across 10+ issuers, and put up with customer service headaches.
5. Despite not being a Costco customer (and already having a Freedom and BCE), getting a QS Visa or Fidelity Amex in addition to a Double Cash, just in case a merchant doesn't take MasterCard.

Another "tell" might be getting a Chase AARP card for 3% cash on dining, when the person already has a no-AF Arrival which gives (or at least gave pre-nerf) a little over 2.2% on dining. The less-than 0.8% cash back difference was enough to get a special card, but this same person wouldn't actually want a CSP due to the AF.

There are some clear problems with this. A great card might be unattainable if the issuer says the person already has enough credit, or old cards can face CLDs or closure. The marginal returns from adding a 21st card are very low. It's a headache if a transaction is processed incorrectly or if there's fraud or an autopay error.

But furthermore, card terms change. Reward rates, terms, and point power changes. Benefits and perks come and go.

A collection of cards is not some fortress, where a wall or tower can be improved just a little and maintain its strength forever. If someone has 20 cards, each with some tiny conceivable reward-maximizing use, card terms will change and after a year, some cards will be useless.

I'm not saying people should change their cards all the time. I just mean that trying to juggle a high number of cards to absolutely maximize rewards from regular spend in the long run is extremely difficult. It's far more sensible to either be "close enough" with a few good cards, or to get into AF cards with big bonuses and close cards as practical.
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
SD: Arrival BrooksBros BCE ED IHG
Letting new accounts cool off since May
Really not sure what I'll add next or when

kdm31091
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Re: Popular credit advice that's nonsense

Postby kdm31091 » Thu Oct 01, 2015 5:33 am

The above irks me so much, Carefulbuilder, and I've posted about it on myfico. Basically spreading rewards across 20 cards makes zero sense unless you have a huge income and spend level. For the rest of us, it's not going to generate massive rewards. "Maximizing" every category is a waste of time and effort.

There are people on MF with a Double Cash for 2% everything, then an AARP for 3% restaurants, then a Cash+ for 5% fast food, then something for 3% gas, etc, etc, etc. The differences can be meaningful if your spend is huge, but one person I'm thinking of said he routinely maxes out Discover and Freedom's dining quarters (with eating out just because, not business related); that's why he needed the AARP and Cash+ etc. To me, if you're spending that much eating out, you probably need to shift your budget and priorities vs worrying about chasing that extra 1% on restaurants. But some people just don't get it I guess.

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Re: Popular credit advice that's nonsense

Postby Vermonster » Thu Oct 01, 2015 8:08 am

It's pretty easy to see why people think this. Despite their intelligence, they can't do math. Banks use percents as selling points because it makes EVERYTHING sound better. 2% cash back sounds awesome because your brain instantly thinks "I make $50k in a year and 2% of that is $1000, I'd love a 'free' $1000." No one remembers that if their salary is $50k they probably only bring home $40k after taxes, and they won't be able to put 100% of that $40k on a credit card. That 2% of $50k quickly turns into 2% of $30k. Ohh but then you're shopping at Kohls and in order to get the big discounts you have to use their card. (Sidenote, Kohls did an amazing job setting up their business plan. People spend ridiculous amounts of money because they think they are saving so much.) Now your 2% is only applied to $25k.


At the end of the day these people probably net a hundred or so dollars more than someone that puts all spending through a max of 5 cards. It sounds good, until you realize the amount of time that they spend searching for better cards, or more rewards. In many cases cutting spending and clipping coupons would yield better results. But people don't feel like they save anything when they don't get the rewards check at the end of the month.
Chase Freedom $9k~~Chase Sapphire Preferred $6.5k~~Amex Blue Cash Preferred $12.4k~~Citi Double Cash $4.7k

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Vattené
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Re: Popular credit advice that's nonsense

Postby Vattené » Thu Oct 01, 2015 8:29 am

How much do you think having all of these specialized cards impacts their spending, too? Going out to a restaurant because you have a special card for it (not that it is a conscious decision, more an influence on behavior) may get you 3% back on what you spent, but if you're spending more you're not gaining anything at the end of the day.
-Vattené
FICO-8:
EX - 809 (11/16) | TU - 803 (11/16)
Primary Cards:
American Express EveryDay - $20,000 (10/14)
Discover it - $23,000 (2/14)
AU on Barclay Sallie Mae - $10,000 (8/15)
plus several store accounts of varying usefulness now

JonE
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Re: Popular credit advice that's nonsense

Postby JonE » Thu Oct 01, 2015 10:04 am

Vattené wrote:How much do you think having all of these specialized cards impacts their spending, too? Going out to a restaurant because you have a special card for it (not that it is a conscious decision, more an influence on behavior) may get you 3% back on what you spent, but if you're spending more you're not gaining anything at the end of the day.

For some it could be an issue. For me I'm not going to spend at a place like Zappos or diapers.com (seriously?) just because Chase has it as a 4th Qtr category. I mainly use it for when the gas, groceries and restaurant categories are active. Between getting CSP and EDP that would negate all that, making Freedom fairly useless.
Current Cards: Chase Freedom, Discover IT
Future: TBD



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