 Learning how to use credit cards wisely
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 Dear
Dr. Don,
I'm new to the whole credit card scene. Does it matter how much
you spend (if any amount at all) using your credit card in order
to build good credit?
-- C.C. Max
 Dear
C.C.,
Part of the scene is how your payment history influences your credit
score. If you don't use your credit cards, you don't build a payment
history. That payment history shows your ability to manage credit.
It's important to build a strong payment history, meaning paying
your bills on time, to increase the type and amount of credit that
lenders are willing to provide you. A strong payment history with
a credit card makes it easier to get a car or a mortgage loan later.
There are three main credit bureaus that provide credit
reports: Equifax, Experian and TransUnion. Thanks to the Fair and
Accurate Credit Transactions Act of 2003, you can get a free copy
of your credit report from each of these firms once each year. I
think it's a good idea to rotate your requests every four months,
rather than to get all three at the same time. The Bankrate feature,
"How
to get your free credit report," tells you how to request
your free credit report.
Lenders report your payment history to the credit
bureaus. Your lenders don't necessarily have relationships with
all three credit bureaus, so your credit history can vary by credit
bureau. Your credit score is based on the information in your credit
report. Each of the credit bureaus has its own variation of your
credit score and, unlike the credit report, you have to pay to get
your credit score from them. Bankrate, in partnership with myFICO.com,
provides a credit score estimator
that will give you an idea of your credit score for free.
Lenders use risk-based modeling to determine whether
they will extend you credit and the loan's terms. The better your
credit score, the more likely it is that you will repay your loan
according to the loan's terms. Lenders can offer people with high
credit scores better rates than people with low credit scores because
they are taking on less risk. Lower interest rates mean less interest
expense.
If you're new to having credit cards then you want
to use them responsibly to build a payment history. Carrying a balance
often doesn't make financial sense, but it can demonstrate to lenders
your ability to manage credit. Keep any outstanding balances low,
totaling no more than 50 percent of your available credit line.
Credit card companies make a lot of money on late
fees, over-the-limit fees and any excuse they can find to raise
your interest rate. A late payment on any credit card has the potential
to raise the interest rate on all of your credit cards. Stay on
top of your financial obligations, and don't get caught in these
traps.
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