First Credit Card Tips and Advice

Dear Opening Credits,

I am 18 and have never had a credit card before or used one or understood how to use one. If I get a credit card, can I buy something or pay a medical bill even if I don't have the money? Is the point of a credit card so you can buy something or make a payment on something when you don't have the money yourself, and you just pay off the credit card when you get the money? And how much money can you use/take at a time?

- Elizabeth

Dear Elizabeth,

What, really, is the point of having a credit card? Can't you just use cash? Sure you can, but credit cards offer advantages that go far beyond those of the dollars in your wallet or bank account. The first thing to remember is proper use of credit will help you build a a great credit score, which can help you down the road when you're looking to finance a large purchase, such as a mortgage or a car. The higher your credit score, the more lenders will view you as creditworthy -- allowing you to borrow large sums at the best possible interest rates. Improper use of plastic can earn you a poor credit score, which can prevent you from getting favorable loans -- or even a job or an apartment.

When you pay for something with a credit card, you're not using your own money but borrowing it from the financial institution that issued you the card. If you charge correctly, credit cards are terrific. When you don't, they can be terrible. Here's the scoop.

Each charge is a loan. Every time you use the card, you're tapping into a line of credit, which is a predetermined amount of money that you can spend that is set by the issuer. Once you get approved for a card, you can choose to borrow some or even all of what is available to you. Therefore, if your credit line (sometimes called a credit limit) is $1,000, you may charge up to that amount.

Putting funds at your disposal is the issuer's end of the deal, and you can charge at many places, including stores, gas stations, online retailers and, yes, most doctor's offices.

Your end of the deal is to use the card responsibility. Because credit cards allow you to make partial payments, you don't have to send every penny you spend right away. As long as you send the minimum payment (usually a small percentage of the balance plus interest) by the due date every month, you're fulfilling your contractual obligation.

Mind, though, that there are some serious potential problems associated with overcharging and not paying the entire balance off on time. While it's nice to have the goods immediately yet pay incrementally, extending a debt for more than a few months makes whatever you buy very expensive. Interest is added to unpaid balances, and it compounds, meaning that over time you are paying interest charges on top of the previous month's balance and interest.

If your card's interest rate is high and you only pay the minimum payment month after month, too much of your payment will go toward interest and not toward the amount you spent -- it can take months or even years to pay off what you owe. Charging only what you can afford to repay in about 30 days is the best policy, at least in the beginning. After you know you can handle credit well, you can consider financing a more costly purchase over a set period of time. However, the monthly payment must always be easily affordable and low enough for you to get out of debt in a few months.

Additionally, it's critical that you pay your credit card bills on time. The issuer will send your payment activity information to credit reporting agencies. A large portion of your credit score is calculated based on your payment history and outstanding debt. Using the card regularly and keeping debt at zero or very low will build a good credit rating. Paying late and carrying too high a balance will lower your credit rating.

Essentially, the point of having a credit card is for you to pay for what you can afford, not what you can't. Although the credit card issuer may allow you to charge a large sum, it's up to you to decide when enough is enough. Use caution and foresight when swiping. Whether it's for a bracelet or braces, the bill must always be one you can repay quickly and easily.