Fix Your Credit Score: Credit Card 101
Updated: Jun 3, 2023
*Not financial advice - your money, your choice*
Many of us make purchases for a dopamine hit knowing that the gratification of that purchase will quickly wear off but then find ourselves asking "Help me fix my credit?"
Studies show that the action of shopping yields a higher amount of dopamine than the actual act of buying something. We tend to get more excited about getting a thing (or the idea of a reward) than we are about actually getting the reward.
Gambling is an excellent example of an activity that capitalizes on this anticipation.
Picture from Casino Supply
We may know the odds of winning are low but things like slot machines often make it seem like we were close to winning (one cherry off), building on the feeling of anticipation leading up to what could be a reward, but in reality, we still lost money.
Shopping is similar to gambling in that the activity is what we find most rewarding but the reward from shopping (like that sweater you really want) is short-lived.
I’m not telling you to stop shopping, but do take your time making a buying decision and only make the purchase if you’ve slept on it & have the cash for it.
If those things are true, then go ahead and buy the sweater. 🙂
We can get into trouble with credit cards when we shop and buy without awareness of how much we can afford to spend. This means knowing how much cash you have and how much money you already owe. Chances are, if you’re in credit card debt from shopping or spending on other things, it may be good to switch to using a debit card so that you’re not extending yourself beyond your means.
Something that can be helpful for building credit without allowing overspending is a ‘Secured Credit Card’.
These require a deposit and you won’t be allowed to spend more than what you deposit.
An excellent example of a ‘Secured Credit Card’ is the Secured Credit Builder Visa Card from Chime (not sponsored):
No hard credit inquiries that affect your Credit Score
Need a Chime Checking Account with $200+ in it
You will never be charged an overdraft fee
If you don’t have sufficient funds in your Chime Checking Account or have reached your SpotMe limit (if enrolled) then your card will be declined
No overspending!
They can do all of this fee-free because of the revenue they produce from interchange fees. Those are fees that merchants bank pay's the customer's bank for the convenience of being able to take cards. The merchant's bank usually then charges the merchant for that fee or automatically deducts it from the total transaction amount.
If you’re still iffy about being able to trust yourself with any kind of Credit Card, there is a cool new debit-credit product offered by Extra (also not sponsored).
This functions as a debit card but each transaction is treated as an ultra-short-term loan.
Effectively, Extra loans you the money to buy your coffee ($7) with the card in the morning, and then Extra pays themselves back at the end of each day so that your balance doesn't have time to build.
This allows you to build a credit history without having to hold a credit card so that you can get approved for a car loan, home loan, job, etc.!
Once you have used one of those cards for awhile and have learned to trust yourself to manage credit, you can take advantage of rewards credit cards like the American Express Gold Card.
Picture from Investopedia.
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