Can you afford to cut up your credit cards?

Account age and quantity of late payments is what affects your credit score the most.

Paying off your CC bill every month does in fact help build history. I've never once carried a balance, don't own my house but have a great credit score.

But put your tin foil hat back on. . . they are all out to get YOU!

You're nuts.

Your credit rating is a measure of how likely you are to pay your debts. While the credit card companies certainly are not going to mind people who pay the minimum balance every month and nothing more, they're also going to charge you an assaninely high rate for it, because only paying the minimum balance every month is a good sign you're one tick of bad luck from going bankrupt and no longer paying anything.

If you have GOOD credit, then you get lower rates. And people are happy to give you lower rates because even though they're not going to make a killing on you on fees, they know they're likely to be paid, they still make some money on interest, and in the case of credit cards, they also make money on everything you charge. Even when I pay off my credit card bill every month and even getting 1% of my expenses as a reward, the credit card is still making money off the merchant.

So yeah, somebody who pays the minimum balance every month, and pays it late, is worth a lot of money. The problem is, it's nearly impossible for the credit card company to tell the difference between that person and a person who runs up a few thousand dollars of debt and then goes bankrupt. And those people are not profitable at all.

Not to mention that your bank, who loans you money for a house or car, definitely wants their money back.

It is wrong. You get the highest credit rating from demonstrating low risk in defaulting on debts. This means a number of things:

1) Not defaulting on debts. Huge surprise here, but paying off your debts as agreed is the biggest thing. Making the minimum payment each month satisfies this, as does paying in full. What matters is paying on time and as agreed. If you are 30 days or more late with a payment, that will make the credit report and count against you. If you outright default that debt, that will also appear.

2) Having credit. Also no surprise here. If you don't have any credit, you risk can't be assessed. You need to have some credit if you are to have a score.

3) Having a credit history. If you just got credit for the first time, that doesn't really show anything. To get a real good (or bad) score, you need a history that shows how you pay your debts. In particular, a history that has accounts that have been active for a long time is valuable (like keeping a given credit card, not switching to a new one all the time).

4) Having an appropriate amount of credit. Too little or too much can negatively impact your score. Too little doesn't really show anything. I mean if you have a single $500 credit card ok, so what? That isn't much money and the fact that you pay it off doesn't really show any great amount of responsibility. You need more to get a really good score. Likewise, having too much is a warning flag. Even if you aren't using it, you are in a situation where you could heavily leverage yourself and that's a risk. The best scores come from having a non-trivial amount of credit, but not an excessive amount.

5) Not maxing out your credit. Your score will be better in general if you have credit, but don't have it run all the way up. If you've got $15,000 in credit and pay off what you charge on it, you are low risk. If you have $15,000 and $14,500 of that is used, well then there's a risk that you are spending more than you can afford and more credit would be risky.

So, contrary to what the parent says, in fact having credit cards and paying them off is one of the best ways to get a high credit score. It shows that you can have credit and use it responsibly. That means that you are at a low risk of defaulting on your debts, and that is what credit score calculates.

As an example I always pay my credit cards in full. I don't carry a balance, since that just costs money. I'll take funds out of savings to pay off a credit card, rather than carry a balance if it comes to that. Last month (the most recent data I have), my FICO score was 819. That is high enough to qualify for preferential rates on pretty much everything.

While companies might want people they can screw, that isn't what credit score is based on. It is purely a risk based calculation. It take a number of factors and sums them up to give institutions a feel for how much risk a given borrower is. It is accurate, too. A good place to see it in action is prosper.com. That's a direct person to person lending site. Basically if you need money, you sign up on the site and make a post talking about what you need and what it is for. As a part of this, prosper checks your credit and posts your rating. People then look at your request and if they like it, bid on part or all of your debt. When your debt has been purchased, Prosper gets the money from them and gives it to you. You then pay Prosper, who pays the people who purchased your debt.

Now as part of this, Prosper releases performance data on loans. You can see it at http://www.prosper.com/lend/performance.aspx [prosper.com]. Now have a look at the defaults area. For people with the highest (AA) grade, less than 1% of loans default. For people in the lowest category (HR) over 20% default. For people with no credit history, damn near half default.

As such credit score can be seen to be a pretty reliable indicator of how likely you are to pay off a debt. THAT is what the score is about, not how big a sucker you are.

Ok to respond to your points:

1) Yes it is supposed to be guaranteed. However there's a lot of "supposed tos" in this world. So what happens if the bank fucks up? What happens if they don't do what they are supposed to do and you are out of the money? Your only recourse is to haul them to court and that is not fast.

As for keeping $10,000 in your checking account, this is totally infeasible for many people. If someone is making $25,000/year they aren't going to be able to keep 10 grand in checking, that's half a year's gross income. As a practical matter, you shouldn't be either unless your monthly expenses are well over $10,000. While it is quite smart to keep a reserve in checking in case you need money fast, keeping that much is just wasting it, letting it get slowly eaten by inflation. At the very least you should put it in a zero risk investment like a high interest savings account, CD, treasury note, or something like that.

2) This is just stupid. If you can't remember to pay your bills, then get a better fucking system to help you remember. Credit cards aren't the only thing that needs to be paid on time. You'll find that your mortgage company isn't going to be very happy if you don't pay them. Have your computer remind you, or get a PDA, or have a friend call you or something. This is not hard, and pretending that credit cards are the problem is silly. Every creditor I've ever seen, credit cards, utility companies, etc gives you at least 30 days grace period. So just pick a day of the month and make that bill pay day. You log in to your bank, you order the bills to be paid, done. If you can't remember to do that once a month, you've got a real problem.

As for moving around, you needn't worry. I haven't written a check to pay a bill in years. Every credit card I've ever seen allows you to pay online. You log in to their site and have them initiate an ACH transfer from your checking account. Easy, fast, works anywhere in the world you can get on the Internet. If you can't get on the Internet, simply get a phone and call them, they'll do it over the phone. They even accept collect calls outside the US.

Alternatively, nearly every bank these days offers online bill pay. This is how I do it. You set up all your accounts with your bank. Then, you just tell the bank how much money to send someone and when to send it. They'll do it electronically via ACH if they can, however you can do it for normal people to, the bank just mails them a check (that's how I pay my association dues).

3) If there's fraudulent shit on your credit report get it taken off! You can contact the credit reporting bureaus and get that handled. They won't remove legit stuff, but if it is fraudulent or meant for someone else, you can get it taken off. Yes it will take some work on your part, deal with it. Nobody said life would be free of work. I will note though that your story sounds like something I've heard from people who were irresponsible with money, and just won't accept responsibility. If the debts are legitimate, then they stay on the report (for 7 years). However having good credit on there helps offset that.

If you don't like or want a credit card, that's cool. Live your life in a way that makes you happy. But please don't try to come up with bullshit non-reasons for it, and don't try to pretend like people don't have very valid reasons for having and using credit cards. If you are bad at managing money and bad at planning, that is a problem you have, not a problem with credit cards. Even if you don't wish to use credit cards, that is no excuse for not getting a system for paying bills on time. If we do business and I don't get money from you because you can't be bothered to remember to pay bills once a month, I am not going to be very pleased with you.

In the CC industry, they call those of use who pay off our CC every month "deadbeats" cuz they don't make (much) money off of us...

It's a control engineering term. A deadbeat controller has zero steady state error and the minimum possible settling time. If you apply this algorithm to your CC balance and treat the balance as the control error ... well ... you pretty much end up with a deadbeat.

Heh, the "deadbeats" are hardly sticking it to the man. VISA makes money off of merchants - generally a percentage of each purchase done on the VISA card is paid to VISA. The more people that have a VISA, the more merchants need to accept it, and therefore pay VISA.

However, the "deadbeats" are making money on the deal too, since their cash/investment/whatever is making interest while their CC balance waits to be paid.