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Credit Basics
 ASAP Credit Card - Copyright 2010
    What is credit and what's it used for?
    Why do I need to establish credit?
    What is a credit report and what's it used for?
    Why is it important to establish good credit?
    How do I establish a good credit history?
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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.

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What is a credit report?

When you apply for credit, the lender reviews your credit report before approving your application. Think of a credit report as a resume. It details how well you have paid your bills and used financial tools such as credit cards and checks.

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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  Other Sections:
  Establish Credit: Learn how to get your credit started and improve your finances!
  Maintain Credit: Keep your credit and finances on the right track and avoid pitfalls!
  Security / Fraud: Avoid common mistakes and protect yourself from identity thieves!
  Credit Reports: Everything you need to know about credit reports and credit scores!
  Credit Resources: Find other helpful credit resources to assist you with your finances!


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