Getting Credit: What You Need to Know About Credit
The Federal Trade Commission (FTC) is the nation’s consumer
protection champion. The FTC works for the consumer to prevent
fraud, deception and unfair business practices in the
marketplace. The FTC provides the information consumers need to
spot and avoid fraud and deception. Consumers can contact the
FTC for free information on a wide range of issues, including:
- Advertising claims
- Buying, leasing and renting cars
- Debt collection
- Employment and job placement
- Identity Theft
- Investment schemes
- Online shopping
- Scholarship scams
- Work-at-home schemes...and more
Being out on your own can be fun and exciting, but it also
means taking on new financial responsibilities. The decisions
you make now about how you manage your finances and borrow money
will affect you in the future—for better or worse.
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 it works.
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, employment and
salary make you a good candidate for a loan, and creditors—those
who lend money or services—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.
WHAT A DIFFERENCE A
can use a credit card to buy things and pay for them
over time. But remember, buying with credit is a
loan—you have to pay the money back. What’s more, if
the credit card company sends you a check, it’s not
a gift. It’s a loan you have to pay back. In
addition to the cost of what you bought, you will
owe a percentage of what you spent (interest) and
sometimes an annual fee.
Charge card—If you use a charge
card, you must pay your balance in full when you get
your regular statement.
Debit card—This card allows you
to access the money in your checking or savings
account electronically to make purchases.
THE FINE PRINT
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 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.
Grace period—This is the time between the
date of the credit card purchase and the date the company starts
charging you interest.
Annual fees—Many credit card issuers charge
an annual fee for giving you credit, typically $15 to $55.
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—Customer service is
something most people don’t consider, or appreciate, until
there’s a problem. Look for a 24-hour toll-free telephone
Other options—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—but only if you
report that it was lost or stolen within two days of discovering
the loss or theft. Paying for additional protection may not be a
YOUR PERSONAL FINANCIAL INFORMATION
Banks and other financial companies may share your personal
financial information with their subsidiaries and other
companies. But you can limit some of that sharing if you want
to. “Opting out” can help keep much of your financial
information private and reduce unsolicited offers that come in
the mail. But it also means you may not see offers that could
interest you. Your financial institutions will send you a
privacy notice once a year in your statement or as a separate
mailing. Be sure to read these notices carefully. Get answers to
your questions from these companies. If you decide you want to
opt out, follow the company’s instructions—you may need to call
them, return a form, or go online. You can shop around for a
DO THE MATH
Keep in mind that credit card interest rates and minimum
monthly payments affect how long it will take to pay off your
debt and how much you'll pay for your purchase over time.
Suppose when you’re 22, you charge $1,000 worth of clothes
and CDs on a credit card with a 19 percent interest rate.
If you pay $20 every month, you’ll be over 30 by the time you
pay off the debt.
You’ll have paid an extra $1,000 in interest. And that’s if
you never charge anything else on that card!
KEEP YOUR CREDIT RECORD CLEAN
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 takes
even longer to be deleted—10 years.
Know What Creditors Look for on Credit Reports
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. You get points for
other things like:
- Your bill-paying history
- How many accounts you have and what kind
- Late payments
- Longevity of accounts
- The unused portions of lines of credit
- Collections actions
- Outstanding debt
KEEP CREDIT CARDS UNDER CONTROL
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. Owing
more than you can afford to repay can damage your credit
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
order by mail, by 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
- 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
- Always report lost or stolen ATM and credit cards to
the card issuers as soon as possible. Follow up with a
letter that includes your account number, when you
noticed the card was missing, and when you first
reported the loss.
PROTECT YOUR IDENTITY
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
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
- 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
- Find out who has access to your personal information
at work and verify that the records are kept in a secure
- Never carry your Social Security card; leave it in a
secure place at home. Give out your Social Security
number only when absolutely necessary.
- 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
- Carry only the identification that you actually
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,
IMPROVE YOUR CREDIT RECORD
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:
Budgeting—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.
Credit Counseling—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 receive. 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
your local Better Business Bureau’s telephone number.
Bankruptcy—Bankruptcy is considered the credit solution
of last resort. Unlike negative credit information that
stays on a credit report for seven years, bankruptcies stay
on a credit report for 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
|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.
Turning to a business that offers help in solving debt
problems may seem like a reasonable solution when your bills
become unmanageable. Be cautious. Before you do business
with any company, check it out with your local consumer
protection agency or the Better Business Bureau in the
company’s location. One rule to remember is that if a credit
repair offer seems too easy or just too good to be true, it
probably is too good to be true. And knowing your rights can
help you steer clear of rip-offs. For example, according to
state and federal laws, companies that help people improve
their credit rating cannot:
- Make false claims about their services.
- Charge you until the services are completed.
- Perform services until the waiting period has
passed. After you sign the written contract, you
have three days to change your mind and cancel the
Fee Loan Scams
|Offers that guarantee you a
credit card for a fee—before you even apply—are
against the law. These scams often target
consumers with credit problems. If someone calls
you making that kind of promise, tell the caller
not to call you anymore and hang up.
If you’ve had a problem, the Federal Trade Commission
(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, call toll-free, 1-877-FTC-HELP
(1-877-382-4357), or visit
www.ftc.gov/ftc/consumer.htm. 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.
It’s a good idea to contact your local consumer
protection agency, state attorney general or Better Business
Bureau, too. Many attorneys general have toll-free consumer
hotlines. To find the number for your state’s attorney
general, check with your local directory assistance.
ADS PROMISING “DEBT RELIEF” ACTUALLY MAY BE OFFERING
|As you try to take control of your
debt, be on the lookout for advertisements that offer
quick fixes. While ads pitch the promise of debt relief,
they rarely mention that this relief comes in the form
of bankruptcy. Because bankruptcy stays on your credit
report for 10 years and hinders your
ability to get credit, it’s important to ask for details
before agreeing to any debt-relief services.
Federal Trade Commission
Toll-Free: 1-877-FTC-HELP (1-877-382-4357)
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
The Jump$tart 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.
DON’T BE LOST
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
- 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.
- 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
About Lost or
Stolen Credit Cards...
|If your card is lost or stolen,
federal law protects you from owing more than $50
per card-but only if you report that the card was
lost or stolen within two days of discovering the
loss or theft. If you suspect any fraudulent
purchases, you may be asked to sign a statement
under oath that you did not make the purchase(s) in
question., it’s important to ask for details before
agreeing to any debt-relief services.