Your Money: The Missing Manual

Chapter 8. Using Credit Wisely

"Credit cards are great for convenience, but terrible for borrowing. Either cut them up, if you can’t pay on time; or—if you can pay on time—make your credit cards pay you.”

—Andrew Tobias

You already know that using credit cards carelessly can lead to debt. But did you know that people tend to spend more when they pay with credit? (See the box on Choosing a Card.) That’s one of the many reasons it’s so important to think before you whip out the plastic.

Credit cards aren’t evil, but they can be dangerous. Just as you’d treat a chainsaw with respect, you need to be careful with credit to avoid hurting yourself. And if you use them wisely, credit cards can actually give you a financial edge.

This chapter will show you how to choose a credit card and use it without getting burned. You’ll also learn how to manage your credit report and find out what your credit score is—and how to boost it.

Credit Cards

First, the basics: When you buy something with a credit card, you’re taking out a small loan from the card issuer—Bank of America, Capital One, or your local credit union—and you owe the issuer that amount. If you pay your balance in full every month, the card basically gives you an interest-free, short-term loan. But if you carry a balance from one month to the next, you’ll end up paying high interest rates and fees on top of the cost of Stuff you buy.

Note

There’s a difference between a credit card company and a card issuer. The card issuer is the bank that ...