Establishing Credit

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Establishing Credit
Money Matters
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Choosing a credit card

Today's consumers are presented with a wide array of credit card choices—cards with low annual percentage rates, cards with no annual fees, rebate cards, gold cards, platinum cards, and so on.

So how do you choose one? Before selecting a card, be sure you know which credit terms and conditions will apply to the account. The Truth in Lending Act is a federal law that promotes the informed use of consumer credit by requiring disclosures about its terms and cost, using specific terminology. In short, the Truth in Lending Act ensures consumers have enough information to "shop around."

Qualifying for a credit card

If you are at least 18 years old and have a regular source of income or savings, you're on your way to qualifying for a credit card. But you'll still have to demonstrate that you are a good Customer. The proof is in your credit history, which lists the amount of credit you have received and how faithfully you've paid it back. You must also show that you have the ability to pay back what you charge on the card.

If you are a full-time student, make sure to include that information on your credit application. Creditors often assign full-time students lower initial credit lines to start their credit files. As you advance through college and graduate school, you can always request increases to your credit line.

Before you submit a credit application, get a copy of your credit history to make sure it's correct. Contact a credit bureau listed in the Yellow Pages under "credit rating and reporting." To order a free copy of your credit history, contact Equifax, Experian, or Trans Union.

Building your credit report

How do you establish your credit history? Even if you've never made a major purchase, there are ways to start building a good credit history:

Open a checking account or savings account, or get a debit card. These do not create your credit file, but their existence will indicate that you have money and show something about how you manage it.

Apply for a department store credit card or a major credit card (such as a MasterCard®, Visa®, or American Express® Card), and use it responsibly. Pay your credit card bills on time.

If you don't qualify for credit on the basis of your own credit file, ask someone with an established credit history (like a parent) to co-sign your application. Remember, the co-signer promises to pay your debts if you don't.

Being responsible

Because credit cards make it easy to purchase things now and pay later, it's easy to lose track of how much you've spent. Make sure you pay all your bills on time, and only get the credit cards you need.

To establish and maintain good credit, pay at least the minimum amount due on each account every month, and pay on time. Allow five to seven business days for payments made by mail.

Use your credit card wisely, and you'll have a very beneficial financial tool. Use your card unwisely, and you'll run up credit card debt you can't afford. Nothing is easier than charging small things here and there, only to find yourself with a large bill you can't pay.

There are easy ways to keep track of your spending. You can list your purchases in a notebook, use financial software to help manage your money or take advantage of services your financial institution offers. Through online banking, for instance, you can see your account activity on a daily basis and even schedule electronic payments.