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Credit Cards: 5 Rules for New Users

My friend Amy, who's in her mid-20s, just got her first credit card. To say she is apprehensive about taking on debt is an understatement. To her, credit cards are the devil. She's seen her friends fall into a cycle of debt and fears she could be next. Amy only opened up the card because her father insisted she should be establishing some credit history. She knows he's right, but something inside her still makes her nervous and a little scared. She came to me asking, "How do I make sure I don't screw up?"

Amy's apprehension proves that managing your money properly is sometimes a mind game. It's emotional.

Here are five tips for credit card first-timers who don't want to fall into the debt trap.

1. Use the Card Just Enough
Opening a credit card is not enough. You actually need to use it in order to establish good credit. Charge enough to the card each month to keep your account "active"; otherwise the bank may shut it down for "inactivity" - and that has the potential to hurt your credit score. Making a few charges totaling $50 to $100 a month is good enough and it's a level you can most likely manage to pay off in full each month.

2. Keep the Card at Home
If you're the type that may be tempted to overspend because a credit card feels like "free money," it's a good idea to leave the card at home most of the time. So how do you keep it active? Automate. Electronically link a couple of monthly bills - maybe cable, heat, or water - to your credit card. Then arrange to have your credit card paid off in full each month with money from your checking or savings account. This transaction can be done electronically.

3. Stay a Little Scared
A little fear can come in handy when making financial decisions. This is a behavioral tip taken from my upcoming book Psych Yourself Rich. I truly believe it can work - but only when done right. On the one hand, fear can paralyze and prevent us from making sound decisions. That's not healthy. But you can recognize and analyze your fears. Ask yourself: Why am I scared? Is it because I'm afraid of getting into debt? Afraid of compromising my goals?

This thought process is healthy. And in this case, your fear can help you recognize what's important to you and help direct you make better financial decisions.

4. Pull Your Credit Report
Once a year you can get free access to your credit report from the three major credit reporting agencies: TransUnion, Equifax and Experian. Visit to download your reports. You want to watch out for any discrepancies and make sure everything that's been reported is accurate. Something young adults in particular want to watch out for: any surprise credit card accounts under your name.

If you see some other credit card accounts opened under your name, call the card company directly and ask for the records and find out when and how the accounts were opened. It may be that someone fraudulently opened a card under your name. Or it may be that you opened a credit card while you were in college - just to earn the freebies - and forgot all about it, while the card got sent to your parents' place. (Hey, it happened to me.) If that's the case, call the credit card company and ask them to issue you a new card, then use it sparingly.

5. Have a Money Buddy
Another Psych Yourself Rich tip - designate a close friend or relative as a money buddy. This is someone who can knock some sense into you whenever you're tempted to charge it up. It's someone you share your financial goals with - someone who will remind you why it's not "worth" spending $100 a month on gym membership when you need $25,000 for a down payment next year. When we're alone, we sometimes lose sight of the big picture. We can use all the help we can get!

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