ABCs of Credit Cards

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When children across the country head back to the schoolroom in the next few weeks, they're likely to start their lessons with a review of what they've forgotten over the summer. So this seems like a good time to offer our own review of some credit card basics: what you need to know about applying for them, how you should use them and how to seek help when you have a problem with them.

Apply for the right credit card

There are a lot of credit cards in the market today, so finding the one that's right for you can take a little investigative work. Even before you read the offers, consider what's important to you. Do you want a card that offers rewards like airline miles or cash back? Are you looking for the lowest interest rate available?

When you've settled on a few good possibilities compare the details carefully. Is there an annual fee required? What's the annual percentage rate--the total interest rate that you'll be charged each year if you don't pay off your balances each month? Does the card offer a lower introductory rate, or a low rate on balances that you transfer from one credit card to another? What penalties will you have to pay if you're late with a payment? All of these should factor into your decision.

Be aware, however, that the interest rate that a bank offers you on a credit card may vary from their advertised annual percentage rate. Those rates usually apply only to people who have excellent credit ratings.

Be a wise credit card user

It's easy to whip out a credit card to pay for a purchase. It's a lot harder to pay your credit card bills each month, especially if you haven't budgeted for them.

While there are times when you may want to carry a balance--if you're making a major purchase, for example--most financial experts advise paying off your credit card debt each month. Over time, you'll save hundreds of dollars because you're not paying interest on that credit card debt. (Wouldn't you rather spend that money on something that you'd like rather than handing it over to a bank?)

Since credit card fraud and identity theft are a big problem these days, it's a good idea to review your credit card account at least a few times each month to make sure that there are no charges that you don't recognize. Untangling credit card fraud can cost you time and money, so the sooner you can catch an identity thief in the act the better it will be for your own credit record.

Consider the long term

Credit cards can be a wonderful convenience, but they can also pose a significant danger to your financial future if you're not careful about how you use them. If you are impulsive and can't control your spending, a traditional credit card might not be right for you; you may be better off with a prepaid card that restricts how much money you have available to you.

If you feel like you're over your head in debt, try contacting a credit counseling agency in your area. They may be able to help you set up a plan to pay off your credit card debt over time and get a handle on your financial future.

If you're a careful credit card user, congratulations! When you pay your bills on time, keep your balances low or pay them off each month, you're sending a message to potential lenders that you know how to handle credit responsibly. That will give you a big payoff long term in lower interest rates for vehicles, mortgages and other types of loans.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.