Credit Cards Without the Trap

A credit card lets you borrow money up to a limit set by the card company. Each purchase is a small loan. Once a month you get a statement, a summary of everything you charged, with a balance due and a due date.

Between the statement and the due date there is usually a grace period. If you pay the full balance within it, you are not charged interest on those purchases. That window is the key to using a card without it costing extra.

APR is the annual percentage rate, the yearly cost of carrying a balance. Card APRs are often high, so an unpaid balance grows quickly.

• Pay the full statement balance every month, and the grace period means you owe no interest.
• Pay only part, and interest starts on the rest, often at a steep rate.
• Treating the card like a debit card, spending only what you can cover, keeps it free to use.

Used carefully, a card builds your credit history, the track record lenders look at later for an apartment or a loan. The habits that build credit are the same ones that keep a card cheap.

• Pay on time, every time, since payment history carries the most weight.
• Keep your balance low compared with your limit, which lenders read as steady use.
• Keep older accounts open, because a longer history generally helps.

A few features cost more than they appear to. A cash advance, taking cash from a card, often charges interest right away with no grace period. Late payments can trigger fees and hurt your credit. Some cards carry an annual fee, a flat yearly charge just to hold the card.

None of these make a card bad. They are simply the parts worth reading about before you use them.