My Love-Hate-Love Relationship with Credit Cards

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I remember meeting her like it was just yesterday. She lured me in with promises of free T-shirts and water bottles emblazoned with the logo of my favorite sports team. As a poor college student, it only made sense to accept her trinkets.

She also promised that I could buy whatever I wanted. Dinner out after I'd been in grueling classes all day ... sure why not! A handful of new CDs (I realize I'm dating myself here) after a tough week ... by all means! A nice spring break trip because the semester has been a beast ... indulge!

We had a good run (or so I thought). I was able to live a life of relative luxury while in college thanks to my plastic mistress. Sadly, other than the loads of mostly replaceable junk she provided, all I had at the end of the romance to show for my commitment was a bruised ego and nearly $25,000 in credit card debt. Like many another disillusioned lover, I now was left with hatred towards my ex.

My Rocky Past With Credit Card Debt

It would be easy to blame my troubles on my ignorance, or that I went to college prior to the CARD Act of 2009, which -- among its many consumer-protective features -- prevents credit card companies from aggressively market to students on college campuses. However, that would only be shifting blame.

But regardless of where the problems lay in the relationship, when I graduated, I broke up with credit cards for good ... or so I thought. Buried under the rubble of my debt, I still needed to climb out.

That climb required a number of things. I had to recognize that misusing credit cards creates nothing but debt. I had to make the serious effort to put myself on the path toward financial literacy, and get on a budget, so I could make strides toward killing my credit card debt once and for all. While these were some dark times for me personally, I am thankful I went through them; that period ingrained in me the solid financial habits that I still follow today.

On the other hand, even once I was out from under my debt, I still carried hatred in my heart towards credit cards, and disgust with myself for what I'd done. And that was something I needed to get over.

My Turning Point

Paying off my credit card debt was one of the greatest feelings in the world. My plastic mistress was out of my life for good (or so I thought). But I soon learned that I still needed her. While I'd been steering clear of credit cards during my debt-paydown period, I needed to start using them again to grow and maintain good credit. But wisely this time.

I started out with one card that had a low limit. I used it a few times a month and paid off the balance in full every month. Instead of viewing credit as play money that I could spend however I wished, I recognized that I should only use it for convenience, to buy what I could already afford at that moment. If something wasn't in the budget, then neither cash nor plastic would come out of my wallet to purchase it.

That lesson about control was a big thing I hadn't learned during in my tryst in college -- I was enslaved to spending. I allowed it to control my life, constantly giving in to my desire for more stuff instead of being satisfied with what I had, or could afford. That may seem simple to you -- and in retrospect, maybe it is. But embracing it was a vital turning point in my financial life.

Gaining the Upper Hand

Today, my wife and I actively churn credit cards. We have used credit card rewards to travel for free and get considerable cash back on our spending. You may think an endorsement of that lifestyle sounds a bit ridiculous coming from someone who battled for five years to pay off his credit card debt. It's an opinion I hear often.

%VIRTUAL-article-sponsoredlinks%But at base, credit card is a tool. Yes, if you hit yourself with a hammer, it's going to hurt. But there's nothing better when you have problem involving a nail. The same can be said of credit cards. Used correctly, they're a fine addition to your financial management toolbox.

While I got a few free things at the start of my initial credit card tryst, I am much better now at getting things for free -- without the attached debt. I use our everyday spending to earn rewards and meet the minimum spending requirements on new credit cards that offer lucrative sign-up bonuses.

Points funded a trip for my birthday a few months ago, and we have several more such trips planned next year. And we're still maintaining a credit score of over 800. So yes: I've changed my view on credit cards again. While I used to love them, and then hated them, I now love them again (albeit more wisely) because they can get me the things I want.

If you struggle with the temptation to spend more with credit cards or have debt, then churning credit cards is not for you. That said, credit cards are easy to demonize, but if you use them wisely they can offer some great benefits.

John Schmoll is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting and frugal living. He is a father, husband, and veteran of the financial services industry who's passionate about helping people find freedom through frugality. He also writes about wise ways to manage your money at WiseDollar.org.

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Why Your Bank Thinks Someone Stole Your Credit Card
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My Love-Hate-Love Relationship with Credit Cards

One reason why Marquis' gas purchases might have triggered a fraud lockdown? Filling their tank is a common first move for credit card thieves.

"Some of the things they look at are small-dollar transactions at gas stations, followed by an attempt to make a larger purchase," explains Adam Levin of Identity Theft 911.

The idea is that thieves want to confirm that the card actually works before going on a buying spree, so they'll make a small purchase that wouldn't catch the attention of the cardholder. Popular methods include buying gas or making a small donation to charity, so banks have started scrutinizing those transactions.

Of course, it's not a simple matter of buying gas or giving to charity -- if those tasks triggered alerts constantly, no one would do either with a credit card. But Levin points to another possible explanation: Purchases made in a high-crime area are going to be held to a higher standard by the bank.

"It's almost a form of redlining," he says. "If there are certain [neighborhoods] where they've experienced an enormous amount of fraud, then anytime they see a transaction in the neighborhood, it sends an alert."

(Indeed, Erin tells me that one of the gas purchases that triggered an alert took place in a rough part of Detroit, which she visited specifically for the cheap gas.)

People who steal credit cards and credit card numbers usually aren't doing it so they can outfit their home with electronics and appliances. They don't want the actual products they're fraudulently buying; they're just in it to make money. So banks are always on the lookout for purchases of items that can easily be re-sold.

"Anytime a product can be turned around quickly for cash value, those are going to be the items that you would probably assume that, if you were a thief, you would want to get to first," says Karisse Hendrick of the Merchant Risk Council, which helps online merchants cut down on fraud. Levin says electronics are common choices for fraudsters, as are precious metals and jewelry.

Many thieves don't want to go through the rigmarole of buying laptops and jewelry, then selling them online or at pawnshops. They'd much prefer to just turn your stolen card directly into cold, hard cash.

There are a few ways that they can do that, and all of them will raise red flags at your bank or credit union. Using a credit card to buy a pricey gift card or load a bunch of money on a prepaid debit card is a fast way to attract the suspicions of your credit card issuer. Levin adds that some identity thieves also use stolen or cloned credit cards to buy chips at a casino, which they can then cash out (or, if they're feeling lucky, gamble away).
 

When assessing whether a purchase might be fraudulent, banks aren't just looking at what you bought and where you bought it. They're also asking if it's something you usually buy.

"The issuers know the buying patterns of a cardholder," says Hendrick. "They know the typical dollar amount of transaction and the type of purchase they put on a credit card."

Your bank sees a fairly high percentage of your purchases, so it knows if one is out of character for you. A thrifty individual who suddenly drops $500 on designer clothes should expect to get a call -- or have to make one when the bank flags the transaction. If you rarely travel and your card is suddenly used to purchase a flight to Europe, that's going to raise some red flags.

Speaking of Europe, the other big factor in banks' risk equations is whether you're making a purchase in a new area. I bought a computer just days after moving from Boston to New York, and had to confirm to the bank that I was indeed trying to make the purchase. Levin likewise says that making purchases in two different cities over a short period of time raises suspicions.

"I go from New York to California a lot, and invariably someone will call me [from the bank], " he says. Since one person can't go shopping in New York and California at the same time, any time a bank sees multiple purchases in multiple locations in a short period, it's going to be suspicious.

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