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| Of the many definitions of "credit," one of the most important is "financial
trustworthiness." Your credit record is
the most important factor lenders consider
when you apply to borrow money - for a car
or house - or open a credit card account.
Many lenders offer better terms and lower
interest rates to consumers with good credit
ratings. Building a good credit record is
an important step in reaching financial
independence and can be established by: |
- Applying for and using a credit card for purchases
- Using a student loan for tuition and books
- Making at least the minimum payment due
- Paying all your debts on time
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Take charge of your financial future now. The information, tools and resources on these pages are designed to help you create and maintain a lifetime of good credit.
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- Control spending on your credit card. A good guideline is never to borrow
more than 20% of your annual after-tax income. Never let your monthly
debt payments exceed 10% of your monthly net income.
Already above the recommended debt guidelines? See which expenses you
can cut. When you apply for credit, lenders carefully evaluate how much
money you owe compared to your income.
- If you use a credit card, pay your bill on time. By paying at least the minimum amount due by the due date, you avoid a late fee and you prevent possible damage to your credit record. Similarly, avoid going over your limit. Are you not receiving your statements? Call your issuer to make sure your current address is being used.
- Are you considering using your credit card to get cash from an ATM? Taking a cash advance should be considered a last alternative. Cash advances typically start accruing finance charges from the day you
take the cash from your credit line. And, you pay a fee for accessing the
cash portion of your line.
- Often, your use of a credit card acts as your agreement to the credit card issuer’s terms and conditions. Read all the fine print associated with your account before you use the credit card. Using a credit card is your responsibility. How you manage it shows creditors how reliable you will be in paying all your obligations. Back to top.
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Find out how much you know about managing your money and credit by testing your credit IQ. Answer each question with the response that best describes you.
Questions -
1) When do you tend to pay your bills?
a. When I receive them
b. As close to the due date as possible
c. I skip some payments
2) What portion of your credit card bills do you pay each month?
a. Most of what I owe, if not all
b. Minimum payment due
c. I don’t pay the bill
3) On average, how much of a balance do you carry on each of your credit cards?
a. None – I pay it all off each month
b. Less than half of my available credit
c. I’m maxed out
4) How much of your monthly income goes to pay credit card bills?
a. Less than 10%
b. Approximately 11-20%
c. More than 20% or someone else pays my bills
5) Do you know how much total credit card debt you are carrying?
a. Yes
b. I have a rough estimate
c. I’m afraid to add it up
If you answered “a” to all of the questions, then congratulations! You’re using credit wisely.
If you answered “b” to all of the questions, you should re-evaluate your budget to identify ways to reduce your debt. You want to be prepared for what life sends your way—that includes making sure you have enough money for emergencies.
If you answered “c” to all of the questions, stop and reevaluate. Before you use your credit card again, examine your budget, financial priorities and credit obligations. If you are not the person paying the bill, you should still plan your spending with the person who is paying your credit card bills to make sure they can afford to pay – both your credit history and theirs are at risk.
If you’re unable to make your credit card payments, consider some of these options: |
- Stop using your cards. If necessary, leave your cards at home.
- Contact your creditors immediately and ask for help. Note any names and
phone numbers of your specific creditor contacts. Follow up with letters
confirming any payment agreements. Keep in constant contact with your
creditors until your specific problem has been resolved.
- Develop a plan to repay your debt, not just to meet the minimum payments
due. Do your best to follow that plan.
- For additional help in budgeting or working out your debt problems, call
1-800-388-2227 for the nearest National Foundation for Credit Counseling
affiliated agency.
- Bankruptcy is a last resort for solving your financial problems. After you
declare bankruptcy, you may still owe your creditors at least some portion
of your debt and the bankruptcy filing will stay on your credit report for up
to ten years. Back to top.
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Annual Credit Report Request Service. www.annualcreditreport.com
Board of Governors of the Federal Reserve System: Personal financial education
information. www.federalreserve.gov
Consumer Credit Counseling Service: Personal financial counseling and information
via phone or mail. www.cccssf.org
Federal Citizen Information Center (FCIC): Answers to questions about federal agencies, programs, and services. www.pueblo.gsa.gov
Federal Trade Commission: A wide range of published consumer credit information. www.ftc.gov
National Foundation for Credit Counseling (NFCC): Advice, information, and local resources for consumers. www.nfcc.org and www.debtadvice.org (includes local NFCC agency locator)
Straight Talk on Money: Ken and Daria Donlan’s Guide to Family Money Management, by Ken and Daria Dolan, Simon and Schuster.
How to Get Out of Debt, Stay Out of Debt and Live Prosperously, by Jerrold Mundis, Bantam.
Money Is My Friend, by Phil Laut, Ballantine. Back to top. |
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Equifax 1-800-685-1111; www.equifax.com
Experian 1-888-397-3742; www.experian.com
TransUnion 1-800-888-4213; www.transunion.com Back to top
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 Just the Facts
Take the Quiz
Resources
National Credit Bureaus
Understanding Credit Home
Budgeting Basics
Safeguard Your Credit
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*Based on Quiz Yourself on Credit, prepared by the National Foundation for Consumer Credit.
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