by Kenneth W. McCarty

Created on: June 15, 2008   Last Updated: June 16, 2008

Credit cards can be great assets if used properly. Your financial viability depends upon how responsible you are now, have been in the past, or plan to be in the future. Three criteria for determining whether you currently need credit cards are:

-Credit History

-Financial Security Needs

-Peace of Mind

Everyone must eventually establish a credit history to function successfully in today's society. A high FICO score allows you to get better terms on loans (or sometimes qualify at all) when buying a house, purchasing a car, or even just renting a decent apartment. It is one of your most important assets, and you should nurture and guard it at all times. Responsible credit card use is one of the fastest and easiest ways to do so.

Never be late on a credit card payment, not even once. Set up automatic bank payments to ensure this. Use the grace period to pay off balances whenever possible. When a balance must be carried over from one month to the next, make sure you have the ability to completely pay it off quickly. Typically, you don't want a recurring balance greater than 25% to 30% of your credit line (less than this if you are having difficulty keeping the balance low). Make sure you pay as little interest as possible.

When credit history is sufficiently built up, lines of credit tend to be extended correspondingly - especially if you call and ask. Everyone needs resources available in case of emergencies. Usually it takes a lot of time to save 3 to 4 months of your income (let alone the 6 months recommended) in a bank account as insurance against that "rainy day" when you might lose your job. An extended line of credit on multiple credit cards can act as a temporary buffer until such a savings account can be established. Remember that credit only acts as a buffer when you actually have it available during a crisis. If it is used up, only cash can help.

Thus available credit can begin to provide some semblance of financial security. Maybe that credit line will allow you to purchase the "interview" suit for your next job or a new computer to start a home business to replace lost income. Perhaps that credit card allows you to buy food until you get your first pay check after being hired. The security that extensive borrowing capacity provides leads to peace of mind in a variety of crisis situations.

So, if you discover you need a credit card, you should look for opportunities to acquire several cards that you will actually use. Most credit card issuers have offers for cards with no annual fees if you have a qualifying credit history. Hold out and negotiate for the best terms you can get. Swipe the one that offers the best deal most often. Limit the number you accept to a few. Use cash back awards (rewards or rebates depending on the lending company) to reduce your final cost for purchases of necessities like gas and groceries.

Remember that credit is not free money. You have to pay back every penny plus interest. If you abuse a credit card, you might eventually pay back two to three times the principle amount in interest and penalties (especially if you are ever late on any payments). That's why you want to use them responsibly. If you cannot use credit cards responsibly, the only way to restore your financial stability and peace of mind is to destroy them. Only appropriate use of credit cards will allow you to enjoy their benefits.

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