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With 2020 being so, well, 2020, many of us haven't seen our extended families in a year or more. As the year comes to an end, I've found myself reflecting on family gatherings of years past. The festivities, the food, the conversations -- and, yes, the questions.
Because let's face it, nobody gives you the third degree like family. And when you have expertise in a poorly understood topic like personal finance, those questions often revolve around what's going on in your wallet.
Lucky for me, I'm an honest-to-goodness finance nerd, and I'm always happy to answer questions -- aka, give spontaneous lectures -- about credit cards and finance. In honor of the family interrogations of yore, here are three oft-repeated credit card questions.
1. So, how many cards do you have now?
This one usually comes with an indulgent smile at the peculiar niece and her weird obsession with plastic payment. For those family members who aren't familiar with my collection, the answer never fails to elicit a shocked cartoon-style jaw drop. Even those who've heard the answers before always seem a bit concerned by the number.
Yes, I do have around a dozen credit cards. No, that doesn't mean my credit score is a disaster. Yes, I would absolutely love to do twenty minutes on the five credit score factors while you finish that turkey.
- Payment history: Do you pay on time?
- Amounts owed: Are you using a lot of your available credit?
- Credit history length: How long have you had credit?
- Credit mix: What types of credit do you have?
- New credit: How often do you open new credit accounts?
So long as you pay your credit cards on time every month and keep the balances low, having a large number of cards isn't inherently detrimental to your credit scores. That said, you could see some damage if you open too many credit cards too quickly or if your credit history isn't very long.
My collection was carefully curated over several years, and I always pay in full before my due date. That means I can have a wallet-busting card collection and an 800+ credit score.
2. Don't you pay a lot of fees for all those cards?
Once we've covered the basics of credit scores and my eyebrow-raising collection, the inevitable follow-up is about fees. Don't all of those cards cost me a lot of money every year? And all that interest! How can I possibly pay all that credit card interest?!
And here's where my hapless relatives get their second big shock: I never pay interest. In fact, I don't even know how much interest most of my credit cards charge. That's because I always make sure I pay my full credit card balance, before the due date, every single month.
For the vast majority of credit cards, your purchases don't start accruing interest right away. Instead, you enjoy what's called the grace period. This is the time between the end of your statement period and your due date. If you pay off your full statement balance before the end of the grace period, you won't pay any interest on your purchases.
Oh, and as for annual fees -- well, I do pay a few of those. But, most years, I earn more than enough in credit card rewards to make up for those annual fees (and then some).
3. What do you even do with all those rewards, anyway?
After I've finished reassuring my relatives that I'm not drowning in bad credit and debt, they usually get around to pondering the reasons for my peculiar collection. Why do you need so many cards? How do you keep track of all those rewards -- and what do you do with them?
This is when I start to break out the travel photos. Here's the trip we took with our credit card rewards points, see the castle? And this, this is the hotel we stayed at -- for free -- after getting the hotel credit card sign-up bonus.
Even without my phone's gallery full of travel redemptions, I get a lot of value from my credit card rewards. Indeed, I could wax poetic about the cash back rewards that paid a month's utilities and covered that new game system.
In response to the questions about keeping track -- well, for everyone's peace of mind, I typically stop short of whipping out my multi-page spreadsheets filled with rewards rates and earnings. I've long since discovered familial love only goes so far once the spreadsheets come out.
Dropping the credit card knowledge, one cousin at a time
It's been tough for many of us to miss out on family events in 2020. But hopefully it makes us all appreciate those gatherings we may have taken for granted in years past. It's strange to say, but I'm almost looking forward to answering those same old questions next year -- especially as I'll have plenty of new credit card adventures to share.