Get Started With Credit.
Credit is very valuable in our world. The ability to borrow funds lets us get the things we would otherwise have to save to get. This includes homes, cars, or college. Credit is an important tool in our financial lives, but can land people in debt far beyond their ability to pay it. This is why learning about credit, and how to use it wisely, is one of the most important skills anyone can learn to protect their financial future.
What Lenders Want To See.
Before creditors lend you money, they need to be sure the funds will be repaid. They ask themselves, "Is the borrower creditworthy?" To answer that question, they need various types of information.
Income And Expenses.
Lenders look at your earnings and normal expenses. This includes rent, utilities, food, and other recurring items. What is left tells them if you can afford to handle more debt.
Assets.
Do you have assets that can be used as collateral? Lenders look for things including bank accounts and valuable items like a house, if you own one.
Credit History.
How do you handle debt? Do you have credit cards? Have you borrowed before? If so, you have a credit history. It is used by lenders to determine how creditworthy you are. Your credit history shows the details of your debt, the amount, the credit cards you have, and whether you pay on time.
No prior credit.
Qualifying for credit is easy with a good credit history. However, what if you never had credit before? For those who are just starting to work, always pay in cash, or do not have assets or accounts in their own names, this is a common problem. For people in these situations, 1st you need to establish a credit history.
How Do You Establish Credit?
If you have a bank account, you can use the funds you have on deposit to apply for a bank loan, secured by that deposit. Or you can secure it with other assets, such as a car you own. You can apply for department store and gas credit cards. Generally, these are easier to get than bank credit cards.
Cosigners.
You can ask a friend or relative with good credit to cosign a loan. When someone cosigns a loan, they share the liability for the loan with the loan applicant.
Credit Terms.
Before applying for any credit, be sure you understand the terms of the loan. For example, how long is your grace period. This is the time you have to pay the current balance in full WITHOUT finance charges.
Find out if there is an annual fee, or any other fee associated with the credit. If you expect to carry a balance, you need to know how they calculate finance charges.
Be Patient.
When it comes to credit, patience is important. Establishing credit takes time. You are building a record of making regular payments to demonstrate your creditworthiness. It is much better to be slow and develop a solid credit record than apply for too many credit cards or loans that are more than you can handle.
Start slowly. Be cautious. Keep track of your total debt. Pay on time. Most importantly, remember credit represents real money which has to be repaid with interest. These are the keys for establishing good credit.
Protect Your Credit.
Once you get credit, you must protect it. This means keeping your credit, debit, and ATM cards safe. This includes your account and personal identification numbers (PIN).
Only the cards you expect to use should be carried. Keep the rest in a safe place. Maintain a list of your accounts and the telephone numbers of the companies which issued your credit cards. Just in case the cards are lost, or stolen, you can contact the companies fast.
Report stolen cards.
If your credit card is stolen, and you contact the company before it is used, you have no liability. If it is after the cards are used, your liability cannot exceed $50 for each credit card. Your liability for debit or ATM cards depends on how quickly you are able to report it.
Disputes.
What happens if you dispute a charge on your bill? You must notify the creditor in writing within 60 days of getting your bill. Include your name, account number, the disputed item, and the reason why.