Giving Yourself Some Credit
An illustrated fact sheet describing what credit is, how to obtain it, and how to use it. Also describes credit ratings, credit bureaus, and the importance of consumers periodically reviewing a copy of their credit report for accuracy. Explains the Equal Credit Opportunity Act.
Note: Last revision 1993. Use this information as a general guide only; consult with a local consumer group for laws specific to your state.
Getting some credit
When we think of credit, what usually comes to mind is a bank charge card like MasterCard or Visa. In fact, any time you borrow money or purchase an item "on time," you are using credit. Credit makes many things possible that might otherwise be beyond reach. For example, few of us have enough cash for a house or a car. Credit can ease unforeseen shortfalls in income or unplanned emergencies.
You may think you will never use credit; however, having a positive credit record can be another form of insurance. To get started, apply for a small loan at your bank, perhaps secured by savings, and repay it promptly in installments. Another start is to open a charge account at a local store. At first you may need a co-signer, someone with good credit who guarantees the debt if you do not repay it.
Handling credit
If used correctly, credit can make many things possible. If abused, it can make you a slave to payments. For some people, charging is an addiction.
- Shop for credit as carefully as you do for merchandise. Compare the price (interest, fees) and terms.
- Explore different sources of credit to finance a purchase. Compare costs of borrowing from banks, credit unions (these have some of the best rates), finance companies (some of the highest rates) or private loans from family or friends.
- Find out the full cost of buying on time. For example, a $500 stereo financed for a year at 20% interest costs you an extra $100 a year at least. Compare this with the price of the item in cash.
- Make as large a down payment as you can to reduce payments and interest.
- Read the contract carefully and make sure it reflects your entire agreement with the seller. Demand a copy of the signed contract.
- Know the penalties if you can't make payments.
Your credit rating
Strictly speaking, a "credit rating" does not exist. What does exist is your credit record, a summary of your bill paying behavior over a number of years. Potential lenders or creditors who subscribe to the service then look over this record and "score" you, according to their own systems, as to whether you will be an acceptable risk. Federal law forbids discrimination against applicants on the basis of sex, age, race or source of income, including public assistance.
There are three major national bureaus with many locations: TRW Information Services, Equifax Credit Information Services and Trans Union Credit Information Company, as well as hundreds of small local companies. To check your credit record, contact them at numbers listed in your local phone directory. Credit bureaus derive both income and information from business subscribers, most of whom are large companies. Federal law says you have the right to see a copy of your credit report, and in most states receive one--usually for under $10. If you have been denied credit in the past 30 days, there is no charge to receive a copy of your report.
If you want to get a copy of your credit report, you can either make an appointment or apply in writing. Send your check for the fee and the following information: your social security number, your name and any other names you have had, and your addresses for the past five years. Sometimes inaccurate information gets on your report so check it regularly. You have the right to challenge errors in your credit report.
Negative information
If you're turned down for credit, it does not necessarily mean you have a bad record. It may mean that you have not lived in the area or held a job long enough, that you have no credit record because you have always paid cash for purchases, or that you had credit in someone else's name (like some married women). Some negative information in credit reports is inaccurate and can be challenged in writing.
Negative credit information can be reported for seven years and a bankruptcy reported for ten years. If the negative information is accurate, only time can fix it--and perhaps new habits. Do not be tempted by businesses that promise to "clean up" bad credit reports. If negative information on your report is accurate, no one can remove it. If your credit problem was the result of unusual circumstances, like illness or unemployment, you have the right to have a 100-word comment added to your report. This may make a difference to future creditors if the rest of your report is good. You can clean up your own credit record by challenging inaccurate information in your credit report, paying your debts on time, and by informing the creditors of your intentions.
Shopping for credit cards
Before applying for a credit card, decide how you will use it so that you can compare the features. Some of the things to compare are: annual interest rate, annual fees, grace periods and extra charges. If you plan to pay the card's balance each month, then a low annual fee will be more important to you than a low interest rate (because if you pay the card off each month, there will be no interest charge). But if you think you will end up carrying a balance from month to month, then a low annual interest rate will be more useful.
Shop for a "grace period," which allows you to avoid paying finance charges if you pay your bills on time. Some companies give you 21 to 30 "free" days; others have no grace period and start charging you finance charges as soon as you make a purchase using the credit card. Other fees include late fees, fees for charging over your credit limit, and fees for electronic transfers.
Protect yourself
- Never lend your card to anyone.
- Don't leave cards lying around.
- Destroy carbons or wrong receipts.
- Never put the card number on an envelope or anywhere it can be read.
- Never give your card number over the phone unless you are sure the company is highly reputable.
- Sign the card in ink immediately.
- Keep a record of the card number, expiration date and the phone number and address of the card company in a safe place outside your wallet.
- Never sign a blank receipt.
- Draw a line through blanks above your signature so that fees cannot be added.
Lost or stolen cards
Call the issuer immediately using the telephone number the company provides for that service, usually on your monthly bill. Follow up with a letter listing the card number, date it was found missing and the date you called in. If your card was used before you notify the card issuer, you are responsible for up to $50 of unauthorized charges for each card. The company immediately cancels the card so that if you find it later, you still have to wait for a new card to be issued.
Equal credit opportunity
The Equal Credit Opportunity Act says it is illegal for lenders to discriminate against applicants on the basis of their sex, marital status, race or national origin, religion, age or source of income. Part-time employment, pensions or other retirement income, public assistance, alimony or child support are all acceptable. The law does not guarantee that if you apply for credit you will get it. Your income, expenses, amount of debts you already have, and bill paying history are still the most important considerations.
© Copyright 1993 Community Service Center for the Disabled and Patricia Woelk
Produced by Community Service Center for the Disabled and Patricia Woelk
Electronic publication funded by BACEF
Published / Reviewed Date
Published: April 01, 1993
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© 1993 –2024 Consumer Action. Rights Reserved.
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