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Killer credit: wisdom for swiping plastic

For a material, plastic has gotten a lot of hype in the last decade. It’s recyclable, perfect for bottling Gatorade and making front fenders on Hondas. But seldom has plastic - in the form of credit cards, anyway - gotten a good rap.

The truth is, the cards themselves are not as much to blame for out-of-control debt as new cardholders failing to understand the concept of credit. Most college-bound high school students find themselves trudging through mountains of credit card offers, many of which can be tempting. But before getting all plastic-swiping crazy, it’s important to understand how credit cards work and when - or when not - to swipe.

Understanding credit

The good news is, there are some good uses of credit cards:

• Responsible use of a credit card will help you establish a solid credit history.
• Credit cards can be used when you don’t have enough cash in your pocket or money in your checking account to cover unexpected expenses, such as fixing your car.
• You can keep track of your spending via the monthly paper statement or by viewing your bill through other banking services such as online banking.
• If you absolutely must use a credit card for a large ticket item, many credit cards offer benefits such as purchase protection against theft or damage and an extended warranty period.

How credit works

Credit card use contributes to a credit rating that, in essence, shows how dependable a borrower is at paying money back. A credit report is generated by anyone who may potentially loan you money or expect you to pay bills, such as a car dealer or landlord. The report shows every credit card in your name, along with late payments.

Good reports encourage lenders to offer loans or lower interest rates in the future. Bad reports can lead to high interest rates and, to put it bluntly, rejection.

"It’s easy to get in the habit of using a credit card for every purchase," said Diana Fergus, credit card product manager and Vice President of KeyBank in Cleveland, Ohio. "Frivolous spending will run up the outstanding balance very quickly and ultimately you are responsible for these charges. Students must decide if the short-term enjoyment of impulse purchases is worth making the eventual credit card payments, quite possibly over a long period of time."

Fergus said a credit card should be used to cover the cost of unexpected, expensive emergencies such as a chipped tooth or a flat tire. Impulse items, on the other hand, can cost you big time.

"Students need to focus on the future," she said. "Using credit cards responsibly will help their finances and build money management skills after graduation."

For more information on credit cards and the best student-approved cards, check out: www.creditcards.com/college-students.php.

Good Uses:

• Tuition
• Textbooks and other supplies
• Automotive maintenance
• Computer problems
• Medical/dental emergencies

Bad Uses:

• Buying pizzas for the entire dorm
• Concert tickets
• New wardrobe
• High-tech gadgets (iPod or DVD players)

Important credit card terms

Annual percentage rate (APR): The one-year rate that is charged for borrowing. For example, a credit card company might charge 1 percent a month, but the APR is 1 percent x 12 months = 12 percent.

Balance transfer: Moving all or part of a credit card balance from one card to another. Some cards allow 0 percent interest for the first balance transfer, which means you can transfer the card balance without paying a dime.

Credit limit: The maximum amount of purchases that can be made on a credit card. If this limit is exceeded, penalty fees are charged and the credit rating is lowered.