Charging meals and purchases on credit cards has become part of the American way of life over the last two decades. It has benefits and risks, but well-managed credit can pay off in the end.

When you feel the need to lease or buy a car, buy a home, rent an apartment, or buy a cellular phone, a good credit history is a must. Auto salespeople, apartment managers, and others use something called a credit check to view your credit history. Since a credit check provides an official record of your payment history, it tells them whether or not you are financially responsible.

If your credit history is bad, you will find it difficult to be approved for credit lines, loans, or rental of an apartment. A bad credit rating can stick with you for seven years.

In the event that you do get approved for something even with bad credit, vendors will offer you credit cards with higher interest rates. Bad credit classifies you as a high risk. Thus, vendors protect themselves by charging more.

How Do I Start Building My Credit?

In order to establish good credit history, you either need to have a credit card and make your payments on time, consistently over a period of time, or you must pay your phone, water, electric, and cable bills on time (although they are not as influential as your credit card bills). By paying your bills on time, credit rating agencies will be able to see your diligence and financial responsibility.

Note: If you do not have a credit card, your lack of credit history is seen as bad credit history, whether or not you are financially responsible.

Credit Reports and Credit Fraud

You should review your credit report annually to check for mistakes and credit fraud. Protect yourself by requesting a copy (this usually costs at least $5) of your credit report from one of the following credit reporting agencies:

• Trans Union: 800-888-4213
• Equifax: 800-997-2493
• Experian: 888-397-3742

What do I do if I'm in Severe Debt?

If you think that you have lost control of your finances and you don't think that you can solve this credit problem by yourself, the following agencies may be of service:

• Consumer Credit Counseling Service: 800-777-PLAN
• Debtors Anonymous: 212-642-8220

Let's start with the definition of each of these cards:

• Credit Cards

  These are cards that are issued to you by a lender. When you make a purchase using a credit card, the lender is actually loaning you money (up to a specified limit). You, in return, must make monthly payments. If you choose not to make the full payment, interest is charged on any amount that is not paid off by the end of the grace period. Daily interest is charged on your balance.

• Debit Cards

  These are cards that are issued by some type of banking institution. Thesy can be used like a check and/or like a credit card, as well as an ATM card. However, purchases are deducted directly and immediately from your checking account balance. Thus, you can only spend the money that you have available in your account.

  Both of these cards are accepted just about anywhere these days. With credit cards, you are using borrowed money. Ask yourself these questions: Will you be able to make your payments on a timely basis? Will you be able to handle interest charges if you cannot make full payment on your balances? If the answers are "no," then you will jeopardize your credit rating.

  Debit cards won't charge you interest since money is deducted from your account automatically. You only spend money that you already have. However, if you have a debit card that is linked to a credit line, any amount that is overdrawn will accrue interest charges until paid off. Ask your New Account Representative for more detailed information.

  Which one is right for you? That's difficult to say. You may find that a credit card is more useful than a debit card or vice versa. Once you understand your spending habits, needs, and ability to handle financial responsibility, you'll be able to choose either a credit or debit card or both.