How to Use Credit Cards Wisely

If you have a credit card, using it responsibly now can save you from having to dig yourself out of debt later. It can also save you from the problems that come with a bad credit history.

Carrying a Balance Can Cost You

Credit cards are actually high-interest loans in disguise. The companies loan you money, and they get it all back and more by charging interest — a charge for borrowing the money — and other fees. Credit card fees may include:

  • Finance charges on the unpaid portion of your bill, which can be as much as 25 percent each month
  • Cash-advance fees with even higher interest rates
  • Annual and late-payment fees

If you pay off the entire amount you owe — or your balance — each month, you can avoid large finance charges. If you don’t pay all you owe every month, you could end up having to spend your money to pay interest charges and fees instead of your actual balance.

Your Credit History Matters

Companies record your credit card payment history in something called a credit report. After college, you’ll need a good credit history so you can rent an apartment, buy a car or take out a loan. Many employers will also check your credit history before they hire you.

Problems with credit cards, such as late or missed payments, stay in your credit report for seven years.

Tips for Handling Credit

If a credit card is in your name, you are responsible for paying the bill. Use your card wisely and follow a few rules, and you can build a good credit history:

  • Read all application materials carefully, especially the fine print. What happens after the introductory interest rate expires? What happens to your interest rate if you fail to make a payment?
  • Use a debit card (or cash) instead of a credit card if you can. That way, you can't spend more than you actually have.
  • Save your credit card for emergencies, if possible.
  • Use credit only if you're certain you can repay the debt.
  • Avoid buying things you don’t need.
  • Pay bills on time to keep charges down. Pay the full balance every month if you can.

Credit Cards and Minors

Federal law limits how credit card companies can do business with people under the age of 21. Unless you can show that you have enough income to make monthly payments, you’ll need an adult cosigner — that is, an adult who promises to take responsibility for the loan — to get a credit card. This law is meant to protect young people from making mistakes and overusing credit. But it’s still up to you to manage your credit wisely.

More Credit Card Advice

The Federal Trade Commission provides information on dozens of topics related to credit and credit cards.