How can you forge a positive and fruitful relationship with credit cards? By learning the basics before you apply for an account. Understanding the fundamentals -- from knowing which types of credit cards exist to the legalities of usage -- will help you charge wisely from the moment you receive that powerful piece of plastic.
There are several varieties of credit cards: general purpose cards can be used anywhere, while private label retail cards can typically only be used at the issuing store or service station.
Secured cards, conversely, are backed by funds you put in a deposit account that the creditor can claim if you default. Because creditors assume little risk with secured cards, qualification is relatively easy, so they are ideal for those with damaged or unestablished credit.
Robert Manning, professor of consumer finance and director of the Center for Consumer Financial Services at the Rochester Institute of Technology, recommends asking the issuer if an unsecured card will be available once you build your credit history.
"Make sure they report to the credit bureaus, too," he says. If they don't, you won't be building a history at all.
According to myFICO.com, the consumer division of the company that invented the FICO credit risk score, the average consumer has nine credit cards.
There is no perfect number of credit cards one "should" hold. A couple of general-purpose cards suit most consumers' needs.
If you want a retail card, make sure it's for a store you frequent often, and offers an incentive for using it as retail cards typically charge higher interest rates than general purpose cards.
Who receives the best (lowest) rates? Consumers with positive and proven credit histories.
The best way to apply for an account, says Lita Epstein, author of "The Complete Idiot's Guide to Improving Your Credit Score," is to "locate the card with the best rates and terms by researching options online."
This targeted search approach can protect your credit rating from too many unnecessary inquiries.
Read the agreement carefully, because once you sign, you form a legal contract and consent to the terms set by the issuer. These include:
Be aware that most creditors reserve the right to change any of these terms -- so check your mail vigilantly for adjustment notices.
Each time you charge, you borrow money.
However, because credit cards offer a revolving balance option, you aren't required to pay the entire loan -- as long as you make at least the minimum requested payment, you can carry the remainder over to the next month. Interest will be added to the balance.
Avoid paying just the minimum payment though. "Your creditor may consider you to be high risk, and increase your interest rate accordingly," warns Manning
As a cardholder, you have a legal right to fair treatment. The Truth in Lending Act requires issuers explain all the terms of the contract in detail, in language the average adult can understand.
Problems with your bill? The Fair Credit Billing Act gives you the right to dispute and correct errors, and protects your credit rating during the process.
Ultimately, there is no secret to using credit cards wisely. If you get a low-fee account, always pay on time, and carry no debt from month to month, charging is free.
Even better, if your card has a good rewards program, you can even come out ahead by using them.