Credit cards are promoted as must-haves - they’re easier to carry than cash, offer greater security than cash, and can be used to strengthen your credit score if used wisely - important if you ever want to apply for vehicle finance or a home loan. But they also come with their own pitfalls and need to be used with caution if you don’t want to get yourself into hot water.

In the next few paragraphs, you'll learn everything you need to know about getting a credit card: how to decide whether you should get a credit card and how to use it so that it’s a benefit and not a burden. Lastly, you'll find a few points to help you choose a credit card if you decide to get one.

1. How do credit cards differ from debit cards?

If this is your first foray into the world of credit cards, you may think they’re much like debit cards. Debit and credit cards do work in fairly similar ways:

• they both have the logo of a major credit card company (Visa or MasterCard),
• they can be tapped or swiped for payments (instead of cash),
• and usually require a pin for successful transactions.

But there’s one very big difference. Debit card payments come off a current account while credit card payments are made using credit which you have to repay with interest later.

2. What is a credit limit?

‘Credit limit’ refers to the total amount of money that you can spend on your credit card. Your credit limit is determined by several factors including your credit score and income. People who earn more and have higher credit scores are often given higher credit limits.

Once you’ve had a credit card for a while, the issuing lender or bank might offer to raise your credit limit but think twice before accepting it. It’s safer to keep your credit limit to an amount that you can pay off easily, and a higher credit limit might tempt you to over-reach.

3. What is a minimum payment?

A ‘minimum payment’ refers to the smallest amount due every month on your card based on a percentage (usually 3% to 5%) of the capital. The minimum payment tends to include interest for the month, applicable fees and potential charges for a defaulted payment.

The minimum payment terms change from bank to bank so be sure to familiarise yourself with the specific terms of the credit card you’re interested in. Because minimum payment is based on a percentage, the smaller your debt, the less you’re required to pay.

4. How interest on credit cards work

Credit card issuers charge interest only if you carry a balance over from one month to the next. If you pay your balance in full every month, your interest rate is irrelevant, because you don’t get charged interest at all. It’s important to know the exact payment due date so that you can pay your balance in full and avoid accruing any interest (the sensible thing to do).

This scenario works well if you have a credit card in order to secure a good credit score. You may be using your credit card for your monthly grocery purchases in which case, paying the full amount when it’s due is possible. But if you are using your credit card to purchase an expensive item that you don’t have cash for, like a new fridge or laptop, then paying the balance in full is not realistic.

If you don’t pay off your credit card in full every month, you’ll be charged interest on every subsequent purchase you make as well as on the outstanding balance. Usually, the annual percentage rate is between 15 and 20 percent, but credit card interest is actually calculated on a daily basis and then compounded every month. What that means is that you’ll be charged interest on interest if you allow it to roll over from month to the next. If we take the fridge/laptop example then paying the interest is unavoidable. In this case, the best thing to do is try and pay off the credit card amount as quickly as possible.

5. How much will a credit card affect my credit score?

There are a number of ways to establish a credit score, but by far one of the most popular options is to get a credit card. However, a credit card itself won’t help you build a good credit score; your spending and repayment habits will. If you spend responsibly on your credit card (spending no more than 75% of limit) and repay in full every month, you’ll likely see a positive trend in your credit score.

However, if you max out your card every month or miss repayments, you can damage your credit score. A downward turn in your credit score would be even more likely if you did this with multiple credit cards, a sure sign of irresponsible financial habits.

6. The fees associated with credit cards

Credit cards tend to come with a plethora of potential fees. We’ve already looked at interest fees, but here are some others commonly associated with credit cards.

• Initiation fee - Many, but not all credit cards, involve an initial once-off fee when the account is opened.
• Monthly account fee - This is a recurring fee that you need to pay in order to use your credit card every month.
• Credit facility fee - Some banks add this to the monthly account fee, saying that it covers the administration and management of the credit facility specifically.
• Reward programme fees - Lenders will sell you on the incredible rewards offered by their credit cards, but often you actually pay for this facility, usually in the form of a yearly fee.
• International transaction fees - Credit cards can be used overseas and offer an easy cashless option for travel. However, international transaction fees will apply, and these can be quite hefty. Ensure you know what these fees are.
• Credit card protection or insurance – Some banks will include this when you apply for credit. The benefit is that your outstanding balance on your credit card will be covered should anything happen to you. This is particularly beneficial should you have a credit limit.

There can also be additional fees for late payments, withdrawing cash, balance transfers, and going over the credit limit—it’s a good idea to find out exactly what these are for your specific card.

7. You might have a choice between a standard or premium cards

If you meet the minimum salary requirements, you might be given the choice between premium or standard credit cards. They technically work in exactly the same way, but premium cards come with certain perks, such as better rewards or 24/7 customer care. Don’t be fooled though because these come at the cost of higher monthly fees. Weigh up if the benefits are worth the extra fees and choose the best option for you, your needs, and your financial position.

8. What is an EMV chip?

In recent years, banks have started incorporating the EMV (Europay MasterCard and Visa) computer chip in their cards. Cards with these chips are meant to protect consumers better from fraud. The information stored in the chip includes data that doesn’t change—such as your card number, CVV, and expiry date as well as extra information that generates dynamic, once-off data during a purchase. Because of this dynamic data, it makes it hard for anyone but you to use the card and acts against counterfeit cards as the dynamic data is only valid for a single transaction.

9. How to decide if you really need a credit card

If you can reign in the urge to spend more than you can afford (remember, credit isn’t money in the bank) and make your repayments on time, a credit card can help you build a healthy credit score. But do your homework: look carefully at the fees, terms and conditions, grace periods and interest rates, and take on a credit card for the right reasons - for emergencies and to build a credit score. If you’re already in the red or you doubt your ability to make regular repayments or repayments in full, credit cards are best left alone.

10. Know that there are other types of revolving credit

Credit cards are a type of revolving credit, which means that they allow you continued access to credit as long as you keep up with minimum payments. But credit cards aren’t the only type of revolving credit. Much like a credit card, a revolving loan allows you to spend credit again and again as long as you keep up with repayments. The big differences between a credit card and a revolving loan are that you’ll need to transfer credit from a loan to your bank account before you spend it and that the monthly repayments made on a revolving loan are a fixed amount, whereas credit card repayments can vary from month to month.