AAR38: How to Maximize Cash Back and Build Credit from Scratch

0:00The first one is, I've mentioned it a bit before, is complex point schemes. Now I know a ton of people will swear on this, and if that's a road you want to go down, then completely fine. By all means, I guarantee you there are people out there that make money by exploiting credit card point schemes. I guarantee it. But I also can get pretty close to guaranteeing you that you're probably not going to be one of those people only because there are so few of those people out there. We want to, again, like aim center mass, quote unquote, and prioritize on strategies, financial strategies that we can be very confident will give us success instead of trying to aim for these things that will.

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4:13Welcome back, ladies and gentlemen, to At Any Rate. My name is Evan Ray, and I am here to help you make sustainable financial changes without breaking a sweat. And I know I said I in that intro, which is a bit unusual for me. And today, I want to welcome you back to a laid-back solo episode with yours truly. And I put yours truly in here. You know, I always have the intro like semi-scripted and written down and everything. And I can't stand saying yours truly. I feel so full of myself. But anyways, today, today's episode is going to be walking through my credit cards, how I chose them, how I manage them, how they work for me, and how you can get yours to work for you too, or get some new ones to work for you too, even if you've never used one before, or if you have bad credit, or you're scared of them at this point, or you have a bad history with them.

4:55Whatever it is, we're going to work through that kind of stuff today, some of those mindsets behind credit cards. And today is going to be extremely transparent, so I want you to bear with me. Some of you might be excited about that, and some of you might be really, really scared of that. But today I want to really dive into how exactly I handle my credit cards, being as transparent as I can without giving you my CVV and my full credit card number. So the goal of today, like I said, is to dive into some aspects of how you can use credit cards as a powerful tool for yourself using yours truly as an example.

5:30That's the whole end goal today. So to start off, how most people use their credit cards and in many ways why it's wrong. There's a ton of issues with the general social ideas around credit cards and a ton of issues that that leads to with how people actually use their credit cards that puts them into horrible, horrible financial situations. Now a lot of this is discussed a lot more in depth in episode 24. If you just search AAR24 on your podcast platform, you'll find an even more in-depth episode diving into credit cards and the good and bad of credit cards today will of course be a little bit more personally applicable to me but just to kind of quickly skim over some of the issues that crop up with credit cards the first one is using it as an emergency fund it's really easy to say i've got this amount of money there i can spend it whenever i want and that's exactly what an emergency fund is but if you're new here if you haven't listened to many episodes an emergency fund should be an amount of money that you have set aside doesn't have to be massive but some amount of money that It is there to spend whenever necessary and never anything else.

6:29And you want it to be completely risk-free for you to use. So a credit card is not risk-free for you to use. Yes, you can use it whenever you want, however you want, wherever you want. But if you can't pay it off initially, meaning you couldn't afford the initial payment, which is probably why you're using your emergency fund in the first place, then you can't pay it off on time. You accrue interest, and that piles up a lot faster than you think it does. another big mistake that i see is is people paying any attention whatsoever to the minimum payment and i know this is this is one of those tripping hazards for a lot of beginners to credit cards or people that just never really learn about the intricacies of how credit cards work as an example the average american the average american is seven grand in credit card debt and maybe that's you maybe that's somebody you know but a lot of that comes about because you take on, let's say$1 ,000 in credit card debt, and it says, well, just minimum payment, just pay us$40.

7:21And you're like, oh, okay, I can afford$40. I can make that happen. But the issue with a minimum payment towards a credit card is, yes, that's taking down your balance over time, but that doesn't mean you avoid interest. All it means is you avoid collections, you avoid getting a massive hit to your credit or defaulting on the card and that sort of stuff and having it canceled. That's all you avoid by making the minimum payment. You still pay interest on whatever's left on there on the card at the end of the next month after it's due. I also, and this is a very easy trap to fall into, but a lot of people use their credit card limit as a spending limit.

7:57If they have a credit card limit of$10 ,000, just making up a number, then they can say, well, I can spend up to$10 ,000 and boom, that's my budgeting spending limit. If you can't actually pay off that$10 ,000, then that$10 ,000 credit limit is essentially meaningless. to you. We'll discuss some ways that it can work for you and can be a part of the equation for you, but the last thing that it is for you is an actual spending limit, saying you can spend all the way up to that, especially a lot of people, which was another tripping hazard, is that people try to play and then realistically end up losing the game of complicated points behind credit cards.

8:31There's stuff like annual fees going on. There's points claimed for different amounts for different things and different exchanges at different times of the year for different airlines. There's a ton of games to play behind all that. And people will gladly go up to their spending limit because they think, well, I've got a 10 grand spending limit on this. So I might as well spend all that to get all these points. And that equation just does not work out. Again, we'll dive a little bit more into why, but the game just doesn't work out in the end for the vast, vast majority of people. And we want to aim, we want to sort of be aiming for center mass, for lack of a better term with all this.

9:03We want to be aiming for the most feasible, again, as always, sustainable, successful way to use credit cards as a tool for you. We don't want to be aiming at fringe ideas that might turn into something and you might earn a little bit more money on your credit card, but you're taking on a heck of a lot more risk. We want to avoid that as much as possible. Another thing that's kind of easy to overlook is being too scared to use them. Credit cards have a ton of upsides to them, but there's also, there's a ton of fear around them. When I talk about stuff like seven grand in credit card debt and hurting your credit score and that sort of stuff, people get horrified and they think, well, the easiest thing for me to do is just to avoid it.

9:40And again, we're going to go over some ways that you're missing out on a ton of opportunities, easy, simple, straightforward opportunities if you don't use them at all. And so that's a massive thing to miss. And the last thing I'll say is even more concrete is it's easy to just hunt for bonus offers. I mean, there's a ton of people out there that will go get credit card solely for the bonus and then plan to cancel it soon after and just grab that cash back bonus or they see a zero percent interest on transfer so if you transfer your your debt essentially your balance on another credit card to our credit card will give you zero percent interest for the first six months or something like that so you don't have to worry about payments for six months and all this is doing is is pulling you in as hard as possible as quickly as possible and then trying to keep you there by putting you into more debt because you think well it's going to be zero percent.

10:33So I might as well spend while I can. You need to spend a certain amount to hit that cash back bonus. Maybe you need to spend$1 ,200 to get$600 back. And so maybe you're spending more than you would have otherwise thinking, well, I'm not going to pay on it right away. Anyways, it's this whole short-term game that gets you into this skewed mindset of how you should actually handle a credit card because in the long run, it's not going to be how it is in those first six months. So that's enough of just covering the downsides of credit cards and everything. Again, we've gone over that before, but to just be, this is when the transparent part of the episode is going to start.

11:06Just to be straight up, the credit cards that I have, I have four currently, and they are a USAA card, a Capital One Quicksilver card, a Bank of America unlimited cash back, and a Prime Amazon Visa card. Now, we're going to go through why I have some of these things and some of the different features behind them, and again, how you can apply this to your own credit card. So for me, the first one up is the USAA card. Now the USAA card is very simple. It's a card that I don't plan to use, but it has a very long credit history solely from my parents. And this is a huge, huge benefit of something my parents did for me.

11:42And I'm extremely grateful. And it's also something very, very easy and simple that you can do for your own children. So what you can do is you can sign up your child as an authorized user of a card. Now, often they have to be of a minimum age. Maybe it's like 13 to 15 years old or something like that. Some a little bit older or some, there is no minimum age whatsoever. But if you sign your child up as an authorized user on a card, they actually build that credit history for as long as they're on that card. So I have a much longer credit history than I've actually ever had credit or spent any money or had any money to spend or anything like that simply because they signed me up for that.

12:20Now it's a card that I still have, again, just for emergencies because it is an active card, but it's really just something that I keep around and keep active because it's my parents' account that I don't ever use, but I am a part of, I'm an authorized user on, so I still get to tap into that credit history. The next one is a Capital One Quicksilver card. This is, again, a card that I really just have around to keep some credit history. It was my first credit card. I'll explain how I got that in the first place and how you can also help yourself get a credit card if you're struggling to get one.

12:54But for me, that's a card that I keep around just to keep up credit history. It's my personally oldest card. And the older your credit history is, the more essentially trusted you are, quote unquote, by the credit bureaus. And so the better your credit's going to look and lower rates you'll get and all that sort of stuff, yada, yada. They just want to see somebody who's been using credit or had access to credit for a long time and has been using it responsibly and hasn't been going delinquent on their loans or anything like that. They want to see that long, consistent history, and they're going to trust you more and more.

13:24My third card, and my, I guess, kind of second most used card is my Bank of America Unlimited Cash Back card. Now, this card just has, it's pretty straightforward and simple. It has a solid 1.5 % cash back everywhere, unlimited, period. And if you're one of those people that maybe has previously thought that credit cards were a scam, they're just to earn money off of people, let's be real, they are a business. They are trying to earn money off of people, but we don't have to be those people. Essentially, there are people that treat credit cards poorly or handle them poorly and therefore pay the credit card companies more than they're actually getting from it.

13:58But there are people like us that can handle it properly, use it properly, and we can use it as a tool to actually earn more money from it simply from taking it on. So that's just a 1.5 % straight cash back everywhere in limited period. All I have to do is use it and I get that cash back no questions asked uh this is a i got this card initially because it was a bank that i had it at the time and it was it was still solid cash back there was no thought that i had to put into it again i wanted to avoid the the games of shifting points all over the place and the complexity of that kind of stuff because that can suck you in and often not get you any more in the end but just a straightforward 1.5 cash back is all i get from that and all i'm looking for from that.

14:42The last one is my Prime Visa card from Amazon. Again, this is a partner with Amazon, so the main bonus with it is that you get 5 % cash back in Amazon, 2 % at restaurants, and I don't use it for anything else. I believe you get 1 % unlimited everywhere else as well, but again, I have that Bank of America card for 1.5 % everywhere else. So this is literally just used for Amazon, getting a really good 5 % cash back. That's essentially just a 5 % discount on anything that I was going to buy anyways from Amazon. And then 2 % as well, 2 % off essentially at restaurants, anywhere we go, any restaurant we spend, we get that 2%.

15:20And then I don't use it anywhere else because anywhere else that I would be using a credit card or would be buying something, I just use my Bank of America credit card and get a higher rate than I would with my Prime Visa. And that is the end of the credit cards that I have now.

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17:48Evan:I just made a new stock the third largest position in my portfolio. And I actually just finished the deep dive report on it called the Newtonian Compounder, How 60 % Returns Power on Unstoppable Machine. It's available for our value spotlight members. If you want to see the thesis, we're doing a 60 % discount for now, but I'm pulling the deal once the stock hits$45. Check it out at einvestingforbeginners.com slash 60. For some of you, that might seem like a lot having four cards, but for a lot of people out there having quote-unquote only four cards is is not many a lot of people will will have cards you know specifically for restaurants specifically for groceries and amazon and target and wayfair like they will get cards for all these different places and if that's a route you want to go down then by all means of course you can but that is when you start to you start to play the dangerous game of having so many to to juggle that you can make mistakes you can miss balances you can be signing up for annual fees or something because in the short term it might work out i'm going to get this couch and save a bunch of money.

18:48But then if you leave that card open for a long time, you just keep paying that annual fee, even if you're not buying anything from that place anymore. And so you're not getting any of the benefits and all you're doing is sinking money into it. But those are the four that I hold on to. And a few benefits of all of them, just of all credit cards. The first off for me, that's very important is purchase protection. When you purchase something with cash or a debit card or something like that, nobody, nobody's going to vouch for you. You essentially just handed money straight to the merchant and they handed you their their product straight to you and aside from ever whatever warranty they offer if you purchase a separate warranty on whatever you purchased whatever it is nobody's there to protect you or have your back whatsoever if they don't want to give you your money back for a faulty product then they i don't want to say they don't have to because there are there are laws but like lemon laws and that sort of stuff but if it's outside of their realm of control then you're not going to get any protection from that.

19:41However, with a credit card, most credit cards out there will give you purchase protection, so they will vouch for you. And if you have an issue with a product, the manufacturer doesn't want to deal with it, won't deal with it, wants to charge you an exorbitant amount of money to have it repaired or replaced or something like that, your credit card can step in and protect you and still refund you for whatever that purchase was, regardless of whether the merchant will or not. And that is huge peace of mind whenever you're spending with a credit card. The second, and even bigger piece of mind, honestly, is security.

20:11Credit cards are much more secure than other forms of payment for the reason, not because they're necessarily harder to get hacked or anything like that, but because, again, the credit card company will stand up and protect you. So if a fraudulent charge occurs on your card and they're not able to get the item back or anything like that and that money is just essentially gone, the vast majority of the time the credit card company will pay you back and bring you back to breakeven. so that you never lost anything. Because by signing up for that credit card and sort of playing the game, quote unquote, of having a credit card, they're assuming they're going to make money off of you, which they don't have to, but that's what they're assuming.

20:49And therefore you get these kinds of benefits where they will protect you and protect your account. It's also extremely easy to use, especially for the credit card setup that I have and that you can have set up as well. It's extremely easy to use. I'm not playing any point games. I'm not doing any complex math on things or doing math on purchases, beforehand or anything like that. It's just, is this a restaurant or Amazon? Okay. Then I use this card. If it's not, then I use this card. And the math is that simple and I'm still getting solid cash back on everything. I know five to one and a half percent doesn't sound like a lot, but that's on literally every single purchase that I make.

21:26Whether it's as big as an espresso machine or something, trust me, you guys know I love my coffee, but it could be as big as an espresso machine or it could be as little as just a bag of beans. Whatever it is, I'm going to get cash back on it and there's going to be essentially a discount and I'm going to get money back. As long as I'm not spending outside of what I would normally buy, I'm just getting that straight discount. And the last thing here is that with the credit card setup that I have, there are no annual fees. I'm not paying any upkeep fee on a monthly or annual basis to have access to whatever that card is.

21:55I simply signed up for it up front. Maybe I had to have a certain credit score to hit a certain limit and hit those thresholds. But past that, the card is just mine to use no questions asked. And that is the most beautiful kind of tool is something you can just keep use, keep using without any question whatsoever. I also want to quickly cover some kind of overall credit card mindsets that I have behind having them. Because again, you can, you can go out and choose the perfect cards for your situation. Maybe you choose the same ones I have. Obviously you don't have to, but if you choose the same ones I have or something like that, that doesn't mean that you're, you're on the right track yet.

22:30That's a good step, but just having the right credit card and having access to the right credit card isn't the entire story. So the first thing is to please, please, please, please, please, for the love of everything, treat spending with a credit card just like you're buying it with cash or a debit card. And what I mean by that is if you go buy a$5 coffee, you better assume that that$5 is gone to you. You've used that$5 to get something, and that is the end of the story. There is no game of, well, I paid five bucks for that coffee, but I'm actually going to wait this long to pay it off, or I'm going to pay it off in installments of this, and that applies to anything.

23:07If you go buy a couch, we talked about couch, so if you go buy an espresso machine, please assume that whatever you paid for that espresso machine, it is gone. You spent that money on that espresso machine, you're going to have fantastic coffee going forwards, but you are not going to have whatever money you spent on that espresso machine going forwards. That money is gone. do not try to play into the games of you know pay as you go or pay later or pay in installments of because there is pretty much always fine print behind those that will cause you to pay some kind of interest and also it's it's just really easy to to miss and screw up on and miss a payment or something like that because it's completely out of your realm of normal bills you pay and that sort of stuff anything you spend with a credit card treat that money is gone and to make that money gone.

23:52The second step here is that I pay off my cards weekly. Currently, I know some other people, some friends of mine that also pay off their cards weekly, or at the very least, just pay it off before the due date. And what I mean by pay it off is pay off that entire balance, pay off that entire espresso machine, that coffee machine off of that balance before it's due. What this is going to do for you is it's going to do two things. First off, it's going to, actually, we could even say three things. It's going to do three things for you. It'll make it so that whatever money you're spending, you know you're comfortable spending.

24:21You're not spending above your means, assuming or using your credit card limit as a spending limit to let you spend more than you financially could afford otherwise. That's one thing it's doing for you. Another is that it's building your credit in the long run because when you pay off your credit card before the due date and don't carry a balance over to the next month, that is one of the most powerful things that you can do to build your credit over the long run. Flat out. There's definitely games out there that people try to play where they say, well, if you carry a certain amount of balance or a certain percentage or a certain dollar amount, that that's actually going to build your credit a little bit faster.