Plus, how to use it wisely and earn the lowest interest rates. iStockphoto By Lisa Gerstner, Contributing Editor Updated for 2017 If you’re smart about when and how you use it, a credit card can help you build a solid credit history and boost your credit score. That will help you get a lower rate when you apply for a mortgage or other loan. QUIZ: The Truth About Credit and Debt Qualifying for your first credit card can be a pain because you may not have much of a credit record. Check with your bank or credit union, which may offer its customers a break. Or apply for a retail credit card, such as the Target REDcard or the Chevron/Texaco gas card. Retail cards are often easier to get than other cards, although they typically come with high annual percentage rates and low spending limits. A third option: a secured credit card, which requires you to make a cash deposit. On-time student-loan payments also help you build a good credit history. It’s easy to rack up a big balance quickly, and if you don’t pay off the full balance each billing cycle, you’ll owe interest. Pay only the minimum and you’ll be paying for a while. For example, if you charge $2,000 on a credit card with a 22% interest rate and make a $60 payment every month, it will take more than four years to pay it off—and you'll fork over $1,119 in interest. You may find that the best way to control your cash flow is to use a debit card or prepaid debit card—once you spend the money, it’s gone. Many credit cards carry perks such as extended warranties and purchase protection, which may get you a repair, replacement or reimbursement for an item you bought with the card that is damaged or stolen within a certain period after purchase. And some rewards cards offer up to 5% or 6% cash back on certain purchases, such as groceries or gas. (You’ll need a solid credit history to qualify for the best rewards cards.) Compare annual percentage rates and fees, such as annual and late-payment fees. Know the Score Credit scores are based on information from your credit history, and they’re a shorthand way for lenders to judge your creditworthiness. There are many credit scores, but lenders commonly use the FICO score when you apply for credit. You often have to pay to see your FICO score—and the version that you buy may not be the same one a lender views. The VantageScore is another gauge that lenders use, though it hasn’t been as widely adopted as the FICO score. The latest version of the VantageScore operates on the same scale as the FICO score (300 to 850), but it’s calculated with a different formula. Don’t get caught up trying to track every score. To get an idea of where your credit stands and how you can improve it, use free tools such as Credit.com, which provides two credit scores based on information from the credit bureau Experian. CreditKarma.com offers free scores based on Equifax and TransUnion information (it also has an app). To protect your credit score, always make your payment by the due date, even if it’s the minimum. Missing just one payment can ding your score. You should also keep the balance on your credit card low compared with the card’s maximum limit. Ideally, your charges won’t exceed about 20% of the card’s limit. And don’t apply for several credit cards in a short time. That can tug down your score. Credit.com and Credit Karma both provide insight on how each portion of your score stacks up. Check Your Credit Reports At www.annualcreditreport.com, you can get a free credit report annually from each of the major credit bureaus: Equifax, Experian and TransUnion. Your reports list your credit accounts, including loans and credit cards, and provide information such as your record of on-time payments, the age of each account, and inquiries from lenders to check your report. Credit reports also point out any delinquencies, such as a bankruptcy or an account that went into debt collection. You can request all three of your free reports at once or stagger them throughout the year, ordering a report every four months. If information on any of the reports is incorrect, you’ll have to correct it with each bureau that has the erroneous information. The procedure is spelled out on each bureau’s Web site. QUIZ: Will It Sink Your Credit Score? You can use free credit-monitoring tools to get e-mail alerts of changes in your credit reports. Credit Karma, Credit Sesame and WalletHub will all monitor your TransUnion report free, and Credit Sesame does the same for your Experian report. If you get a notification that, say, a new credit account has been opened but you didn’t open it, you can investigate further in case someone has stolen your identity. Pick Your Plastic Pros Cons Credit Cards Strongest fraud protections Helps build credit history Perks such as purchase protection and travel insurance Rewards, such as points for travel or cash back, on some cards Temptation to accumulate debt Late fees Some cards have an annual fee High interest rates compared with home and car loans Debit Cards Limits spending to what you have in the bank No monthly payments or interest charges Using it may fulfill requirement for no-fee checking High fees if you allow overdrafts Weaker fraud protection than a credit card Doesn't build credit history May be harder to use for hotel and rental-car reservations Prepaid Cards Limits overspending Some have direct deposit, ATM access and online bill-paying Easier to acquire if you have poor credit May charge high activation fee and monthly maintenance charges Fewer fraud protections Doesn't build credit history This story was originally published in the June 2014 issue of Kiplinger's Personal Finance.