Credit Cards can be a very useful tool to have in your wallet, but they’re also dangerous. Credit cards can help you build up your credit score, especially if you don’t have a credit history. You need to be careful though, credit card companies make their money off uninformed credit card holders.

What to know!
The first thing to realize before using your first credit card is that you are going to be spending money that you will have to pay back. This seems obvious, but credit card users may fall into the trap of overspending without thinking about paying it back. Overspending with the plan of paying back with minimum payments will lead to you getting stuck in an endless cycle of debt that will financially set you back.

Another thing to keep in mind is credit usage. Credit usage is the percentage of available credit you are currently using. Financial professionals advise keeping your credit usage under 30% so if your credit limit is $1,000 the maximum balance you should have on your credit card is $300. A good rule is to not make any additional purchases with your credit card, but use your balance to purchase essentials and pay it back as soon as the charge is processed.

Interest Rates
Credit card interest rates or annual percentage rate (APR) is the cost of carrying a balance on your credit card. If you have an APR of 30% this is the annual percentage you will be charged so you can divide your APR by 12 to calculate what you will be charged per month if you carry a balance. This is money that you do not have to pay back if you stay up to date paying your balance off in full every month.

Secured Credit Cards and Annual Fees
Secured credit cards require a deposit and are usually for new credit card owners. If you deposit $500 on your secured credit card, your credit limit will be $500. Credit cards with annual fees usually include travel cards, business credit cards, store credit cards, and rewards credit cards. You do have to pay a fixed amount every year just to own the credit card, so they might not be the best choice for first time credit card owners who just want to establish their credit.

Different Types of Credit Cards
There are different types of credit cards that are made for different people. There are credit cards that give a certain percentage of cash back benefits on things like: gas, dining, and groceries. There are credit cards that give discounts or mileage credits on airline flights. These credit cards will often have a sign up bonus, meaning that if you spend a specified amount of money on the card in the specified timeframe, you will be rewarded with cashback, or points to use towards hotels or airfare.

How to check your credit score
Once you’ve had your credit card for six months or so, you should check your credit score to see how your hard work is paying off. There are three major credit bureaus (these are the agencies that decide your credit score). The bureaus are; Equifax, Experian, and TransUnion. One easy way to check your credit score without it affecting your credit score is by using the website Credit Karma. Credit Karma is a free credit checking service that requires you to sign up and enter some information about yourself, and you can check your credit score as frequently as you want with them. Credit Karma gives you scores from two of the three major credit bureaus: Equifax and TransUnion.