What is credit?
Credit is a privilege and a convenience.
Credit lets you pay for electronics on
an installment plan, take out a loan for
a house, pay for clothing on a credit
card, or pay for schooling with financial
aid. Credit allows you to make a purchase
without ready cash. You get credit by
promising to pay in the future for something
you receive in the present. But, there
are strings attached; credit usually costs
something (interest), and what is borrowed
must be paid back.
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Why do I need
credit?
Credit gives a number of benefits you
don't get when paying with cash or checks:
-
Convenient, hassle-free
shopping. When you use a credit
card to make a purchase, you don't have
to carry a lot of cash, pay by check,
or present additional identification.
A credit card also simplifies and speeds
up catalog ordering and currently is
virtually the only way to make Internet
purchases.
-
Emergency protection.
Credit cards are the ultimate financial
security blanket. They can get you through
nearly any emergency situation.
-
Easier budgeting.
With a credit card, you can make purchases
and pay them off on a schedule that
fits your budget. Credit cards also
allow you to take advantage of sales
and special offers.
-
Security. If
you lose cash, it can be used by anyone.
If you lose a credit card and report
the loss to the card's issuer before
it is used, the issuer cannot hold you
responsible for any unauthorized charges.
If a thief uses your card before you
report it missing, the most you will
owe is $50.
-
Travel expenses.
You'll find that a credit card is almost
essential for renting a car, purchasing
an airplane ticket, or booking a hotel
room. Whether you're across town or
on another continent, a credit card
is the universal guarantee of your good
financial standing. And if you need
cash, you can get it at ATMs or banks
around the world that accept your credit
card.
What is
a credit report?
Just like a report card or a resume,
a credit report is used to document your
performance; in this case, your financial
performance.
The report details how well you pay your
bills, bank loans and credit card purchases.
It also can indicate if you have abused
financial tools such as checking accounts
and debit cards. Even debts of small amounts,
if not paid on time, can hurt your credit
standing.
The three major credit agencies which
monitor this activity are Equifax,
Experian,
and TransUnion.
These agencies, also called "bureaus,"
collect and report information about your
financial habits and put the information
into a credit report.
Below is a list of information that can
appear on a credit report:
- Your name, Social Security number,
birth date and current and previous
addresses.
- Information about your employers,
both current and previous.
- Your payment history with major credit
cards, department store charge accounts
and loan payments.
- Your payment history with utility
and telephone services.
- A list of your accounts (if any) that
have been referred to a collection agency.
- Inquiries made about your credit history
that have been made over the past several
years, and whether or not you were granted
credit.
- Public record information: such as
bankruptcies, foreclosures, and tax
problems.
Information on a credit report can remain
for many years. (This is often referred
to as your "credit history.") Since this
report is used by others to make important
decisions affecting you, it is important
to review your credit report for accuracy
once a year.
* See our Credit
Report section for more information.
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Why is it important
to establish a good credit history?
Establishing a good credit history is
an important part of your personal and
financial future. It can help open doors
for you or keep them locked. A variety
of people and businesses make decisions
affecting your future based on your credit
history. Banks and other lenders consider
your credit report when reviewing applications
for mortgages, revolving lines of credit
or other loans. Landlords sometimes use
credit reports to decide among rental
applicants. And a potential employer may
even assess an applicant's credit report
prior to extending a job offer. Your credit
report may also be reviewed when you apply
for auto insurance or homeowner's insurance,
or even a mobile phone. This is why it
is so important to establish good credit.
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How do I establish a
good credit history?
In short, you can establish a good credit
history by consistently paying your bills
on time. Remember, to establish a good credit
rating you should always pay at least the
minimum amount due every month by the due
date.
Go to Establishing
Credit
for more information...
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