How Having a Credit Card Has Saved Me Tens of Thousands of Dollars

Credit cards are usually associated with spending money, not saving it. But, my credit card actually helped me save tens of thousands.

That's not just because I have rewards cards that I've been able to use to earn cash back and miles. There's actually an even more important -- and more valuable -- way that my cards have saved me.

This is the biggest benefit credit cards have had on my financial life

The biggest financial benefit that credit cards have had is that they have helped me to earn a good credit score.

I don't really do much other borrowing, but I still have a credit score that is above 800 and this is because I've had multiple credit cards for a very long time. I've also paid them on time every time for many years, have a very high credit limit, and I don't use much of my available credit.

Since I have used credit cards in a responsible way, my past payment history and low utilization ratio have been reported to the credit reporting agencies and have demonstrated that I'm a responsible borrower. This has helped me earn the kind of credit score and develop the type of credit record that puts lenders at ease.

As a result of my good credit score, I've been offered very competitive rates when I applied for a mortgage loan for every house that I bought. Since my mortgage was a necessity to buy a house, and since I was borrowing hundreds of thousands of dollars, qualifying for a loan at a low rate saved me tens of thousands of dollars.

For example, if you got a 30-year mortgage for $300,000 with a credit score of 760 to 850, Bank of America says you could have likely qualified for a mortgage at a rate of 6.458% (as of October 2022). This would come with a monthly payment of $1,888 and result in total interest costs of $379,653. But, with a credit score of just 620 to 639, your mortgage rate would have been about 8.047% at that time. This rate would have given you a monthly payment of $2,211 and total interest costs of $496,007.

Is it possible to build credit without a credit card?

Having a credit card -- and using it responsibly -- is clearly well worth it if you want to get a mortgage some day in the future and pay a lower rate.

Of course, it's possible to build credit without a credit card. You can earn a good credit score with any kind of responsible borrowing, such as taking out a car loan or a personal loan. But, credit cards can be easier to get when you're just building up your credit record, and they don't require you to actually pay interest in order to earn a good score. So, they're an ideal option if you want to make sure you're building credit without enriching a lender.

The reality is, many people will need a mortgage to buy a home and if you suspect you will someday, consider getting a credit card. Using it wisely now will help you become an attractive borrower when the time comes to buy a home of your own.