Thursday, February 3

Credit cards can be used to your advantage

Gannett News Service

Credit cards aren't the root of all evil.

But overuse is one of biggest reasons people fall into financial trouble. If you pay the full balance every month and never exceed the limit, a credit card can be a tool toward managing your money and improving your credit score.

Cards with a grace period allow you to use your money elsewhere, perhaps earning a little interest in a checking or money market account, for 20 or 30 days between the time you purchased an item and when the bill comes due. And a card company's itemized bill can help refine your budgeting.

``If someone wants to get credit for the first time, they really need to shop around and not agree to the first deal they see,'' says James Lucas, vice president and education director for Cincinnati Credit Counseling Services. The nonprofit organization offers credit counseling and debt management programs to people with financial problems.

``It's OK to go buy that sound system for your car or home theater, but what's not OK is to get into a deal for credit with outrageous rates and terms,'' he says. ``People will spend days and weeks shopping around for a digital camera or stereo but not a lot of time on how they will finance it.''

One of the first places to shop for a card is in your own mailbox, probably the repository of a couple credit card offers a week.

Look for deals with no annual fees, 20- to 30-day grace periods, low interest rates for both an introductory period and after the first several months, and no fees for special services such as balance transfers. Cards that offer rewards, such as free gasoline, airline miles or cash back, are worth considering only if they come without the fees and high interest rates.

Also check Cardweb.com, which tracks the credit, debit and gift card industry, for information and applications on widely available bank cards, including Visa, MasterCard, American Express and Discover.

But don't apply for too many cards - even over time. Any more than four credit cards, whether you use them or not, can adversely affect your credit score, which is used to determine interest rates on loans and cards, says Gerri Detweiler, author of ``The Ultimate Credit Handbook.'' Two to three cards generally are manageable for most people.

The average household that uses credit cards has six bank cards and more than eight store and gasoline cards, according to CardWeb.com.

Lisa Lee Freeman, deputy finance editor for Consumer Reports magazine in Yonkers, N.Y., advises prospective cardholders to take time to thoroughly understand the fine print in credit card agreements. Some cards with rewards offer high teaser rebates that drop by half after a few months.

She recommends double-checking a card's annual fee policy. For example, with the Chase PerfectCard, consumers must use it at least nine times a year to avoid a $19 annual fee.

Credit cards have advantages over debit cards if they are lost or stolen. Federal law caps your maximum liability at $50 for each card if you report them missing. If you report the losses before the stolen cards are used, you won't have to pay anything. Liability for unauthorized use of a debit card depends on how quickly you report the loss.

---

(Contributing: Tim Pennington, The Cincinnati Enquirer; Ted Griffith, The (Wilmington, Del.) News Journal.)

Related tips