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. [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. [back
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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... [back to top] |
