Having a $0 balance card on hand to cover an unexpected vet bill can be a smart move
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Dear Opening Credits,
I have a dog that I recently adopted. I have a medical emergency fund large enough to pay for most normal veterinary emergencies, but I am becoming increasingly concerned about emergencies or illnesses that are very rare and may require an unreasonable fee. Because these are very unlikely, I have ruled out purchasing pet insurance, as I can already afford most emergencies and it is generally underutilized and overpriced.
I’m considering opening my first credit card just for this purpose and NOTHING ELSE. I would likely not even carry it on my person except when I take him to the vet. I would either maintain a $0 balance or charge a small amount every month and pay that amount in full, like billing my $9 Netflix account to my card.I am lucky enough to have parents who have worked to build up my credit score for me throughout my life, and I do not want to waste their efforts. Which method would be better for my credit score: maintaining a $0 balance or transferring a monthly expense that I already pay to the card so that I can consistently pay my bill in full? And if one method harms my score, how much will it affect it? Thank you! — Megan
It’s an interesting concept, this building a credit rating for someone else. I presume your mom or dad added you as an authorized user to one of their existing card accounts when you were a minor or young adult. You might never have even spent with the card, yet it began appearing on your credit reports upon issuance. Companies such as FICO use the information on consumer credit reports to generate credit scores, so when your parents charged and repaid responsibly, you reaped the benefits. It’s a major gift, so I’m glad you don’t want to squander it.
I also applaud you for thinking ahead financially. Your healthy young pup may only need the basics now, but as the years pass, dogs may fall ill or become injured. To manage potential upcoming costs, pet insurance is an option, but if you would rather not go in that direction, that’s fine. I understand your reluctance. It’s possible — and according to a pet insurance analysis by Consumer Reports magazine, likely — that you would end up paying more for the total of your premiums than you would ever get out of them.
Just like medical insurance for humans, the cheaper offerings have higher deductibles while the more expensive ones have lower deductibles. On average, it would be about $300 per year, with a couple of hundred dollars as a deductible. It is conceivable that your dog will be fine for five years, so if you put that sum away you’d save $1,500.
So what happens if your dog requires pricey care that exceeds your savings? Most vets offer third-party payment plans where (if your credit rating is sound) you could pay for procedures with no interest added as long as you deleted the balance in a specific time frame. But yes, a personal credit card is an option, too. It can be economically sound as long as you do it right.
For example, let’s say your dog needs surgery to the tune of $5,000. After the $1,500 you have saved, $3,500 is left. If you were to charge that sum to a card with an 11 percent APR and made fixed payments of $600, you’d be debt-free in seven months. The total interest cost would be about $115 — not bad for the luxury of paying incrementally.
I think it’s a wise idea to have a card anyway because there are some things that are smart to charge. Because of the consumer protection credit cards provide, charging plane tickets and other big ticket items makes sense. Just keep the balance to zero and you’ll never pay extra.
Check your FICO scores (at myFICO.com for about $20 per report) to see which credit cards are available to you now. Scores start at 300 and go up to 850, but those in the mid-600s to the mid-700s are considered good. If yours are especially high, you can qualify for super low rate cards with valuable rewards programs; if they’re on the low side, the cards available to you have a higher fee structure and have more basic terms.
Whatever you get, though, you can use it to increase your credit rating without having to rely on your parents. That small revolving Netflix charge? Perfect. Automate the payment with your bank and your scores will steadily rise with virtually no effort. Over time, using credit while paying on time and keeping debt low will hike your FICO.
A couple crucial tips: When you get the card, use it. If you choose not to add a revolving expense, charge something at least every couple of months. Issuers will close dormant accounts. Also, make certain you have enough of a credit line available for your dog’s eventual needs. Obviously, a $2,000 credit line would be insufficient for a $3,500 bill. You might have to start with a low line, but with excellent use now, the lender might expand your borrowing power later. The bigger the credit line the better, as a balance that’s at or close to the limit will lower your FICO score until you pay it down.
Finally, if you’re still piggybacking on your parents’ card, jump off after you get your new card. You won’t need the ride any longer.