Did you know that there are companies that keep track of whether you pay your debts and if you make payments on time? Then these companies
make this information available in the form of a credit report and score.
A bad credit history can haunt you for a long time — seven years or more. That's why the best thing to do is learn how to maintain good
credit before there's a problem. While this might seem complicated at first, it gets easier once you understand the basics of credit and how
Credit is more than just a plastic card you use to buy things — it is your financial trustworthiness. Good credit means that your history
of payments makes you a good candidate for a loan, and creditors (those who lend money) will be more willing to work with you. Having good
credit usually translates into lower payments and more ease in borrowing money. Bad credit, however, can be a big problem. It usually results
from making payments late or borrowing too much money, and it means that you might have trouble getting a car loan, a credit card, a place to
live, and, sometimes, a job.
Most creditors use credit scoring to evaluate your credit record. This involves using your credit application and report to get information about
you, such as your annual income, outstanding debt, bill-paying history, and the number and types of accounts you have and how long you have had
them. Potential lenders use your credit score to help predict whether you are a good risk to repay a loan and make payments on time.
Many people just starting out have no credit history and may find it tough to get a loan or credit card, but establishing a good credit history
is not as difficult as it seems.
- You might apply for a credit card issued by a local store, because local businesses are more willing to extend credit to someone with no
credit history. Once you establish a pattern of making your payments on time, major credit card issuers might be more willing to extend
credit to you.
- You might apply for a secured credit card. Basically, this card requires you to put up the money first and then lets you borrow 50 to 100
percent of your account balance.
- You might ask other people who have an established credit history to co-sign on an account. By co-signing, the person is agreeing to pay
back the loan if you don't.
When applying for credit cards, it's important to shop around. Fees, charges, interest rates and benefits can vary drastically among credit
card issuers. And, in some cases, credit cards might seem like great deals until you read the fine print and disclosures.
When you're trying to find the credit card that's right for you, look at the:
Annual Percentage Rate (APR)
The APR is a measure of the cost of credit, expressed as a yearly interest rate. Usually, the lower the APR, the better it is for you.
Be sure to check the fine print to see if your offer has a time limit. Your APR could be much higher after the initial limited offer.
This is the time you have to pay your credit card bill after the date of the credit card purchase and before the date the company
starts charging you interest on the unpaid amount.
Many credit card issuers charge an annual fee for giving you credit.
Transaction Fees And Other Charges
Most creditors charge a fee if you don't make a payment on time. Other common credit card fees include those for cash advances and
going beyond the credit limit. Some credit cards charge a flat fee every month, whether you use your card or not.
Customer service is something most people don't consider, or appreciate, until there's a problem. Look for a 24-hour toll-free
Creditors may offer other options for a price, including discounts, rebates and special merchandise offers. If your card is lost or
stolen, federal law protects you from owing more than $50 per card for unauthorized charges.
A lot of people spend more than they can afford and pay less toward their debts than they should. To get control over your finances and
to manage your debt, try:
In many cases, people design and then stick to a budget to get their debt under control. A budget is a plan for how much money you have
and how much money you spend. Sticking to a realistic budget allows you to pay off your debts and save for the proverbial rainy day.
Many universities, military bases, credit unions and housing authorities operate nonprofit financial counseling programs. Some charge a
fee for their services. Creditors may be willing to accept reduced payments if you're working with a reputable program to create a debt
repayment plan. When you choose a credit counselor, be sure to ask about fees you will have to pay and what kind of counseling you'll
A credit counseling organization isn't necessarily legitimate just because it says it's nonprofit. You may want to check with the Better
Business Bureau for any complaints against a counselor or counseling organization. Visit www.bbbonline.org for your local Better Business
Bureau's telephone number. Bankruptcy is considered the credit solution of last resort. Unlike negative credit information that stays on
a credit report for seven years, bankruptcy information can stay on a credit report for as many as 10 years. Bankruptcy can make it
difficult to rent an apartment, buy a house or a condo, get some types of insurance, get additional credit, and, sometimes, get a job.
In some cases, bankruptcy may not be an easily available option.
When To Contact Creditors
If you're having trouble paying your bills, contact your creditors immediately. Tell them why it's difficult for you, and try to work
out a modified plan that reduces your payments to a more manageable level. Don't wait until your accounts have been turned over to a
debt collector. Take action immediately and keep a detailed record of your conversations and correspondence.
It's easy to qualify for credit if you have a good credit history, but what if you have never used credit before? This is a common problem
for people who just started working, those who work in the home, people who always pay in cash, and those who do not have assets or accounts
in their own names. For them, the first step is to establish a credit history.
Patience is important in this process. It takes time to establish credit and build a record of consistency in making payments to demonstrate
your creditworthiness. And it is much better to go slowly and develop a strong credit record than to apply for too many credit cards or a
loan that is larger than you can handle. Start slowly, be cautious, keep track of your overall debt, and pay on time. Most importantly,
remember that credit actually represents real money and has to be repaid with interest.
Good credit is important, now and in the future. In most cases, it takes seven years for accurate, negative information to be deleted from
a credit report. Bankruptcy information can take even longer to be deleted — up to 10 years depending on the type of bankruptcy.
Understanding what types of information most creditors evaluate is important. Your credit report is a key part of your credit score, but
it is not the only factor. Other factors include:
- Your bill-paying history
- How many accounts you have and what kind
- Late payments
- Longevity of accounts
- The unused portions of lines of credit
- Outstanding debt
- Collections actions
Credit reporting agencies don't share files so you'll need to contact each reporting agency to make sure the information about you is
correct. The three major credit reporting agencies are:
The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion
— to provide you with a free copy of your credit report, at your request, once every 12 months. You can order your free annual
credit report online at www.annualcreditreport.com, by
calling 1-877-322-8228, or by completing the Annual Credit Report Request Form found on
www.ftc.gov and mailing it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
When you order, you need to provide your name, address, Social Security number, and date of birth. To verify your identity, you may need
to provide some information that only you would know, like the amount of your monthly mortgage payment.
Whether you shop online, by telephone or by mail, a credit card can make buying many things much easier; but when you use a credit card,
it's important to keep track of your spending. Incidental and impulse purchases add up, and each one you make with a credit card is a
separate loan. When the bill comes, you have to pay what you owe or pay interest on unpaid balances. Owing more than you can afford to
repay can damage your credit rating.
Keeping good records can prevent a lot of headaches, especially if there are inaccuracies on your monthly statement. If you notice a problem,
promptly report it to the company that issued the card. Usually the instructions for disputing a charge are on your monthly statement. If
you make a purchase by mail, telephone or online keep copies and printouts with details about the transaction.
These details should include the company's name, address and telephone number; the date of your order; a copy of the order form you sent to
the company or a list of the stock codes of the items ordered; the order confirmation code; the ad or catalog from which you ordered (if
applicable); any applicable warranties; and the return and refund policies.
Finally, if you have a credit card, take the following precautions:
- Never lend it to anyone.
- Never sign a blank charge slip. Draw lines through blank spaces on charge slips above the total so the amount can't be changed.
- Never put your account number on the outside of an envelope or on a postcard.
- Always be cautious about disclosing your account number on the telephone unless you know the person you're dealing with represents
a reputable company.
- Always carry only the cards you anticipate using to prevent the possible loss or theft of all your cards or identification.
- Always report lost or stolen ATM and credit cards to the card issuers as soon as possible.
Identity theft involves someone else using your personal information to create fraudulent accounts, charge items to another person's
existing accounts, or even get a job. You can minimize the risks by managing your personal information wisely and cautiously.
Here are some ways to protect yourself from identity theft:
- Before you reveal any personally identifying information, find out how it will be used and whether it will be shared.
- Pay attention to your billing cycles. Follow up with creditors if your bills don't arrive on time.
- Guard your mail from theft. Deposit outgoing mail in post office collection boxes or at your local post office. Promptly remove
mail from your mailbox after it has been delivered. If you're planning to be away from home and can't pick up your mail, call
the U.S. Postal Service toll-free at 1-800-275-8777, or visit
www.usps.com to request a vacation hold.
- When possible, put passwords on your credit card, bank and phone accounts. Avoid using easily available information like your
mother's maiden name, your birth date, the last four digits of your Social Security number or telephone number, or a series of
consecutive numbers. It's a good idea to keep a list of your credit card issuers and their telephone numbers.
- Don't give out personal information on the telephone, through the mail or over the Internet unless you've initiated the contact
or you know whom you're dealing with.
- Protect personal information in your home. For example, tear or shred documents like charge receipts, copies of credit offers
and applications, insurance forms, physician's statements, discarded bank checks and statements, and expired credit cards before
you throw them away. Be cautious about leaving personal information in plain view, especially if you have roommates, employ outside
help or are having service work done. Find out who has access to your personal information at work and verify that the records
are kept in a secure location.
- Never carry your Social Security card; leave it in a secure place at home. Give out your Social Security number only when
- Order your credit report from each of the three major credit reporting agencies every year to make sure it is accurate and includes
only those activities you've authorized.
- Carry only the identification that you actually need.
What to Do If You're a Victim of Identity Theft
If your cards, bills or identification have been misused to open new accounts in your name, file a complaint with the Federal Trade
Commission. Call toll-free 1-877-ID-THEFT (1-877-438-4338); TDD: 202-326-2502, or visit
A lost or stolen wallet or purse is a gold mine of information for identity thieves. If your wallet or purse is lost or stolen:
- File a report with the police immediately and keep a copy.
- Cancel your credit cards. Call the issuer(s) immediately. Many companies have 24-hour toll-free numbers to deal with such emergencies.
The number is on your monthly statement.
- Get new cards with new account numbers on stolen cards.
- Call the fraud departments of the major credit reporting agencies, and ask each agency to put a “fraud alert” on your account:
- Equifax 1-800-525-6285
- Experian 1-888-397-3742
- TransUnion 1-800-680-7289
- Report the loss to the fraud department of the bank where you have your checking and savings accounts. Ask about the next steps
regarding your accounts, including your ATM or debit card.
- Review your credit reports regularly and have them corrected when necessary.
- Report a missing driver's license to your state department of motor vehicles.
- Change your home and car locks, if your keys were taken.
Federal Trade Commission
Toll-Free: 1-877-FTC-HELP (1-877-382-4357)
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information
to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit
www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY:
1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure,
online database available to hundreds of civil and criminal law enforcement agencies in the United States and abroad.
Toll-Free: 1-877-ID-THEFT (1-877-438-4338)
The FTC is the federal clearinghouse for complaints by victims of identity theft. Although the FTC does not have the authority to bring
criminal cases, the FTC assists victims of identity theft by providing them with information to help them resolve the financial and other
problems that can result from identity theft.
The JumpStart Coalition for Personal Financial Literacy
The JumpStart Coalition for Personal Financial Literacy seeks to improve the personal financial literacy of young adults by evaluating
their financial literacy; developing, disseminating and encouraging the use of standards for grades K-12; and promoting the teaching
of personal finance.
The above information has been taken from “What You Need To Know About Credit” by the Federal Trade Commission or “FTC”
and “How to Establish Use, and Protect Your Credit” by the Federal Reserve Bank. You may find these pamphlets and additional
information by visiting their websites at www.ftc.gov/gettingcredit and