Credit Card

Credit cards can be a blessing and a curse. When you use a credit card, you are taking out a loan in the amount of your purchase. If you pay the money back when the bill comes, there is usually no interest on the loan. They’re easy to use: almost all merchants accept major credit cards. And they’re safer to carry than money. If you report a lost or stolen credit card immediately, your liability is limited to $50.

If you want to rent a car, book a hotel room, reserve a flight, shop online, rent movies, or even write a check, you need a credit card. A credit card, if you use it well, can also be a great way to build a credit rating. If you get a card with a reasonable limit and pay your bill in full and on time every month, you’re on your way to a sound credit rating when you want to get an auto loan or mortgage.

On the other hand, credit card fraud is widespread. Be careful with your card. Sign the back, know where it is at all times, be very cautious about giving out your card number and expiration date, and don’t leave receipts lying around. We know a woman who threw a receipt away at work and spent over a year cleaning up the credit mess made by the person who fished her receipt out of the trash and made some major purchases on her account.

The other drawback of credit cards is that they can be too easy to use. It’s easy to get into unmanageable debt a little at a time with a credit card. If you don’t control your credit cards, they may control you. Follow our credit card tips to show your cards who’s boss.

Credit Card Tips

1. Never forget that using your credit card is taking out a loan. Before you even apply for your first card, decide what you will use it for and how you will pay the monthly bills.
2. Shop around. Look for the lowest annual fee and interest rate. Don’t be enticed by a low introductory interest rate: find out when the rate will rise and what it will go up to. Read the small print on anything you sign. If you find a word you don’t know, look it up in bankrate.com’s dictionary.
3. Ask at your credit union. Credit cards offered by credit unions tend to have the most favorable terms. Many credit unions also accept late payments without penalties up to 15 days late. Other issuers charge a penalty for payments even one day late. Late fees at credit unions are typically lower, too.
4. Pay attention to your mail. Credit card issuers can change the terms of a card with just 15 days notice. You could be socked with higher interest rates or fees and not know it, simply because you threw away the envelope because it looked like junk mail. Your account can also be sold at any time, so the company that issued your card may no longer hold it. This is another area where credit unions compare well with other institutions: a credit union is less likely to sell your account or make major account changes. If you’re not a credit union member, click here to find one near you.
5. Always pay on time. Late payments play havoc with your credit rating and can cause the card issuer to raise your interest rate. A double whammy!
6. Pay off your total balance every month. If you can’t do that, pay more than the minimum amount. The minimum payment will keep you paying interest forever, never touching or only nibbling at the principal of the loan. If you charged a $1,000 item today, for example, on a card with an 18% interest rate and only made minimum payments, you’d need 12 years to pay it off, and it would cost you $1,115 in interest. That’s right - more than the original price.
7. Never charge so much that your debt is more than ten to twenty percent of your income. And, if you do go into debt on your cards, spend the money wisely. Do you really want to find yourself paying interest in six months on last night’s bar tab?
8. Keep your credit card issuer up to date. If you move, let them know. If you’re going to be late on a payment, tell them that, too, before the bill is due. They may be able to help you avoid a black mark on your credit report.
9. Get one or two cards with a reasonable combined limit and use them wisely. No one needs a stack of credit cards. In fact, having too much open credit can hurt you, even if you don’t use it. The section on credit and debt will give you more details on this topic.
10. If you find yourself spending too much on your cards, make them hard to use. Follow the tips for using credit cards in our budget section.