October 20th is Get Smart About Credit Day.
Sponsored by the American Bankers Association, Get Smart About Credit is “a national campaign of volunteer bankers who work with young people to raise awareness about the importance of using credit wisely.”
To be honest, before the morning news mentioned it this morning, I had never heard of Get Smart About Credit Day. But I am always supportive of efforts to educate and inform about financial matters, so I will take this as an opportunity to promote their efforts.
Be Wary of Where You Get Advice
In conducting research for this article, I came across a forum hosted by a big national bank. I’ll forgo calling them out by name – they’ve had enough problems recently.
But splattered across this forum, there was comment after comment suggesting that people with “bad” credit get a secured credit card from the sponsoring bank so they could start building “good” credit.
And while I do realize that this is a strategy you can use to improve your credit, it only works if you can handle credit cards responsibly. And more times than not, those people with bad credit have demonstrated that they cannot handle credit cards responsibly.
As such, suggesting that these individuals get a credit card to improve their credit is akin to suggesting that an alcoholic start drinking only beer so as to learn how to handle their drinking more responsibly.
The most likely outcome of this scenario is a train wreck. It would not surprise me to see an individual reading the forum take this advice and start using a credit card only to once again find themselves knee-deep in high-interest credit card debt. At that point, unable to pull themselves out of debt, they ultimately resort to some even more serious consequence such as declaring bankruptcy.
The Lowest Cost Solution is Sometimes the Best
Instead, how about just reducing your spending as a solution? I know this isn’t a great solution for companies that issue credit cards or loans, but often the best solutions don’t come with a price. They just require planning and willpower.
If you have a history of carrying a balance on credit cards, stop using them. In fact, cut them up and throw them away. If you can’t buy whatever it is you want to buy without using credit to do so, then you shouldn’t be buying it in the first place.
If you can handle the responsibility of using a credit card, the one exception I’ll grant you is to get a credit card with a really low limit. Use the card for one purpose – to put gas in your car. That’s the only time I’ve found that not using a credit card is a real inconvenience. Of course, you could opt to go with an electric car in which case you wouldn’t need gas, but that’s a topic for another day.
Actually, there is another time when it’s helpful to have a credit card and that is when you travel. Renting a car or reserving a hotel room is a pain when you don’t use a credit card. So go ahead and keep a card, but only use it for gas, rental cars, and hotels. And please make sure you pay off the balance every month. In fact, go ahead and set up an automatic bill pay for the card so you never miss a payment.
Support Get Smart About Credit Day
As I said at the beginning, I am always supportive of any organization or entity that strives to improve the financial state of others. The stated goal is admirable and I would like to see more of an effort to educate young people on the responsible use of credit and proper financial management.
So I support Get Smart About Credit Day and ask you to do the same.
Readers, are you familiar with Get Smart About Credit Day? What about other efforts to educate and inform young people about financial matters?