Your 5-minute guide to credit cards

By MSN Money staff

Use a credit card wisely and you can reap benefits like cash back, bonus points and airline miles, not to mention a better credit score. Use it unwisely and you could end up under a mountain of debt.

The No. 1 rule is: Pay off your balance every month. Otherwise, you'll pay interest on your purchases. Paying the balance takes discipline. About 40% of households carry credit card debt, according to the Federal Reserve.

Protect your good name (and score)

• Make your payments by the date -- and time -- they're due. Late fees are $29 or more. A couple of late payments will trigger an interest rate increase. Because late and missed payments lower your credit score, the interest rate can go up on your other credit cards and for future loans as well. (See " 7 fast fixes for your credit score .")
• Limit the number of cards you have. Experts recommend having two to six cards. Applying for lots of cards can hurt your credit score. Conversely, closing several credit cards at once will trigger a decrease in your score. (See " 1 in 7 Americans carry 10 or more cards .")
• Read the fine print. Know the interest rate you will be charged, the grace period for paying your debt before interest kicks in and your credit limit. Does your company use two-cycle billing? (Better look, because two-cycle billing means you could pay interest even when you carry no balance.) Also, almost half come with a "universal default" clause, allowing an increase in your interest rate if you are late paying any other bill. (See " Credit card companies' evil tricks .")
• Negotiate. If your credit score is 700 or above, you may be able to get a lower interest rate or get the company to drop a late fee. ( Estimate your credit score .)
• Don't exceed 30% of your credit limit. Credit bureaus don't care if you pay off your balance each month. They're interested in how much of your available credit you use. If it's excessive, your credit score will drop.

The devil in the details

Credit card companies market different types of cards, featuring low interest, rewards or other benefits. Be careful about the terms, which are subject to change.

• If you're transferring a balance to a new card with lower interest, find out how much will the company will charge for the transfer. Urge that it be done electronically so you don't accumulate interest on both the old and new accounts. Low-interest introductory offers may apply only to the balance transfer and not to new purchases.
• Reward cards that provide dividends like rebates and airlines miles sound too good to be true, and can be. The higher interest rate charged by most reward cards can more than offset the reward if you carry a balance. Reward offers can change with little notice and may come with budget-busting conditions -- for instance, you have to spend a certain amount to earn the reward.

Convenience? Sometimes

If you buy a defective item or protest a charge, your credit card company is obligated to investigate. If your card is stolen, you're liable for no more than $50 for unauthorized charges.

Other "services" offered by credit card companies have potential drawbacks.

• Contactless credit cards make it even easier to purchase items because you don't need to swipe your card or hand it to a cashier. But thieves can scan the info on your card. You can buy a signal-blocking sleeve or make one out of aluminum foil. (See " New credit cards allow hands-free theft .")
• Don't use "convenience" checks your credit card company sends you unsolicited in the mail. They're costly -- with a fee of 3% or 4% of the amount you write, plus high interest rates with no grace period -- and don't provide the consumer protection you get when you make a purchase with your credit card. (See " Dangerous checks in the mail.")
• Credit card protection insurance generally covers only the minimum payment if you become disabled or unemployed, and interest continues to build on your outstanding balance.
• Using a credit card issued by a department store you frequent can entitle you to cardholder discounts, but limit yourself to one card. Each department store account you open reduces your credit score.

Getting back in the game

Getting and using a credit card could be the easiest way to re-establish credit if yours has gone sour. But getting back into the credit game comes with potential hazards.

• Cards issued to those considered credit risks come with interest rates in the 18% to 22% range and low spending limits. Such cards sometimes have extra fees hidden in the fine print. (See " Credit cards for the desperate.")
• Don't take the bait when companies want to issue you one low-limit card after another. You can find yourself back in debt, paying late fees, over-limit fees and high interest rates on multiple cards.

If you've fallen off the wise-spending wagon, seek counseling from a nonprofit credit-counseling agency certified by the National Foundation for Credit Counseling.

Tired of unsolicited offers of pre-approved cards? Call 1-888-5 OPT-OUT.