Now before you think that you should never use credit cards, it’s actually a good idea to use them…IF you can use them wisely. Why? Well, establishing a good credit history makes it more likely that you’ll be approved for loans you might apply for later like a home mortgage or car loan. Here are a few tips about how to use credit wisely:

• Limit yourself to 1 or 2 cards. Since store credit cards often lead to more impulse buying, and impulse buying can lead you to quickly run up the maximum on a card that will be hard to pay off, you might want to instead consider limiting yourself to 1 or 2 major credit cards like Visa, MasterCard, American Express, or Discover.
• Pay the entire amount off each month. If you can’t, pay the most you can and take the card out of your wallet so you don’t use it the next month. Remember, every month that you don’t pay off the full balance you’re going to be paying more in the long run for that debt because the interest you owe will be charged to the balance.
• Ask for accountability. If you’re worried about getting out of control with your credit card, ask a friend, family member or relative that you’re comfortable with and can trust to hold you accountable. Ask them to check in with you from time to time to see your credit card statements, or just even to ask if you’re in debt. Just knowing that someone else is taking an interest in your financial life can help you resist the temptation to overspend.
• Comparison shop. The beautiful thing about credit cards is that there’s a ton of them out there. That means that you can shop around for the best deal. Why pay the highest interest rate and an annual fee if you can get a card with no fee and a lower interest rate? (Although we’ve already established that you’re going to pay the balance in full every month, right?!) Instead of just filling out the first application you get in the mail, check out Cardweb.com, a site that compares a wide variety of credit cards and gives you the opportunity to apply online. What do you want to look for when you’re shopping for a credit card? Look for the APR (annual percentage rate), which will tell you how much interest you’re going to be charged. If it’s a very low interest rate, you’re also going to want to see if it’s an “introductory” or “teaser” rate that will last for only a short, defined period of time (such as 60 or 120 days). Once an introductory or teaser rate has expired your rate will likely jump…sometimes significantly. You’ll also want to see if the card charges an annual fee, what the cash advance fee is and what interest rate they charge on cash advances. Don’t just comparison shop once. Periodically, say every year, check around to make sure you have the best deal on the credit cards you’re using.
• Check your credit report. Remember when you were growing up and someone would threaten that a bad act would “go on your permanent record”? Well, truth be told, there is a sort of financial permanent record on you out there. It’s called a credit report. A credit report is a report compiled by the three major credit bureaus (Equifax, Experian, TransUnion Corporation) that keeps track of how you use credit (credit cards, loans, etc.). The report shows how/if you make your payments on time; how much you pay, if anything, above the minimum due; how many credit cards or lines of you credit you have; if you’ve ever gone bankrupt, etc. Here’s the really important thing to know – future employers, banks, credit companies, etc. can and will check your credit report before hiring you or making loans to you. They want to know that you’re responsible with your money and that you’re a “good credit risk” – meaning that if they loan you money they know you’ll pay them bank. Click here for more information on how to get a copy of your credit report or visit Annual Credit Reports website to learn how you can obtain a copy of your report for free each year.

You don’t have to swear off ever using a credit card. Just remember to shop around, know what you’ll be paying for using credit, and use your cards wisely. If you do that, you’re well on your way to building a solid financial base for your future.