Starting Out - A credit use primer

First, ask yourself why you want a credit card. Is it to build a credit history, or do you need something immediately, that you just don't have the cash for? Depending on what it is you need, a bank loan may be a better option, when you consider the generally higher rates of interest charged by credit card companies.

If you want to build a good credit record, don't forget that your basic daily life is a major part of that as well. Long term residency and employment look good to lending institutions when it comes to a large purchase down the road, that will take time to pay back (mortgage and car loans, for example). Regularly paying normal bills such as utilities and rent, is also to your good credit.

However, a credit card may also help. The way to get the most benefit in terms of no extra costs, but positive feedback on your credit status, is to pay off everything you charge immediately, before any interest accrues. So when you go shopping for a credit card, remember to ask these things:

• What is the interest rate?

• Is there an annual fee?

• What is the "grace" period, before interest is added to the purchase?

By law, this information must be given to you, when you apply for any credit card.

Now, which card are you going to get? Obviously, the best choice is a low interest, no annual fee card accepted at most major stores and service facilities. Shop the major credit card companies to see just who is accepted where, then decide on one. Some will even offer you rebates or other perks such as air miles. One credit card and a bank card for withdrawal purposes at stores or gas stations, is more than adequate. Once you start piling up the number of cards you have, the easier it is to get into debt that you'll have a hard time getting out of.

Not only that, but if you have half a dozen cards with a $5,000 limit, but have only two with balances under $100, a lending institution which checks your credit report, may assess you as having a $30,000 debt, because technically, you could go right out and charge that much.

If you have no bad debt record, and are employed, it is relatively easy to apply for an unsecured card. This is one that grants you credit without any guarantee on your part, other than your agreement to make payments.

Bad credit history, may mean that a company will require you to maintain a specific balance in a bank account, anywhere from a few hundred to thousands of dollars, with your credit line being anywhere from 50-100% of that deposit. It is their security if you default on payments. But if you had that money to start with, you wouldn't need the card, would you? This option often has significant application fees and associated costs like higher interest. The only time it is of any real benefit, is for the person recovering from a bankruptcy for example, where they can't establish new credit, without being granted some to start with.

Even if you have only one card, and your ATM card, it is a wise idea to check your statements against your receipts each month, and send for a credit report once a year, to make sure that no errors have crept into your record. You can get a free credit report by signing up at Free Credit Report