Credit card usage and its impact on your credit score

Surprisingly, you’ll have to do more than just pay it off every month

Folks often have a lot of questions for me, but maybe you can't call in to the show while we're recording the show, so you can send in your question in advance. Just record your voice on your smartphone. Send it to TheTruthAYF.com. That's what Andrew did. He's in Atlanta.

ASK Ric - Andrew: Hi, Ric. This is Andrew from Atlanta. I consider myself to be a typical retail consumer, and I use my credit cards for most all purchases. I pay them off each month, which helps support my credit score. And I also collect points that I can use to offset purchases on my Amazon.com account. With all the benefits offered by credit cards, what incentive would there be for someone like me to switch from using credit cards to a digital currency or central bank digital currency, assuming one is issued in the US? Thanks, Ric.

Ric Edelman: Andrew, there is no advantage or benefit from what you're describing, at least not the way you've described it. The notion of using a credit card has nothing to do with the notion of using cash currencies and whether the government might issue a digital version of currency. Two totally separate issues that have nothing in common at all. However, let's focus on that credit card thing. A couple of comments. Number one, you're doing a great job. This is fabulous - using a credit card instead of your own cash. Use the credit card company's instead of your own, settle up, pay the bill at the end of the month (which you're doing at the end of every month so you're incurring no interest expense -  good for you), and that means you should be using a zero-fee credit card. You're getting total free use of the credit card company's money. And if that card is offering you incentives such as cashback, either in the form of dollars or airline miles or points, for example, at Amazon, as you said, or Bitcoin back, all of that is wonderful. You should choose a credit card with the best benefit based on your spending and lifestyle habits. For example, if you never fly, you really wouldn't want a card that offers airline miles. If you want to get involved with crypto without having to buy crypto, a bitcoin-back credit card is a good idea. But if you like the cashback, just go with a good cashback credit card. You're in great shape. But one other fine piece of print that you mentioned, you said that by paying off the credit card every month, it helps with your credit score...Not entirely.

Another way to boost your credit score

Ric Edelman: I mean, yes, you're right. Demonstrating that you pay your bills on time every month, never missing a payment, never late with a payment, never having a bounced check. You're absolutely right, that's extraordinarily important for your credit score. But keep one thing in mind, creditors want to know that you borrow money and pay it back on schedule. If you're never paying interest, you're never really borrowing money. So you might want to consider obtaining or having other loans. Not necessarily your credit card, but perhaps car loan, mortgage loan, student loan. Those debts, which you pay over time, including paying interest, are what really builds a credit score, because lenders want to know that they're going to make money by lending you money.

Remember,  if you're not paying any interest to Visa and MasterCard, there's really nothing in it for them to have you as a customer. They want people who borrow, don't pay off the balance in full, but instead make regular monthly payments on time every time. So I'm glad you're doing what you're doing and I'm glad you're doing it the way you're doing it. Take a look at your credit score and see if it can't be even higher. And if you don't have any debt anywhere, it might sound counterintuitive, but getting a debt and simply for the purpose of paying it back on schedule, that, in a weird way can actually help your credit score. That was Andrew in Atlanta. You can do what he did. Send me your question to TheTruthAYF.com. Stay with us for more here on The Truth About Your Future.