Getting Credit: What You Need to Know
About Your 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
- Credit
- Debt
collection
- Employment
and job placement
- Identity
Theft
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- Investment
schemes
- Online
shopping
- Scholarship
scams
- Sweepstakes
-
Telemarketing
-
Work-at-home schemes...and more
|
WHAT’S CREDIT
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.
YOUR CREDIT
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
WORD MAKES |
Credit card—You 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 number.
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 good value.
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
financial institution with the privacy policy you want. |
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
|
Where to Obtain a
Copy of Your Credit Report |
Credit reporting agencies don’t share files, so you’ll need to
contact each reporting agency to make sure the information about
you is correct. The three major credit reporting agencies are:
In some
states, you don’t have to pay to get a copy of your credit
report. |
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 rating.
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 precautions:
- 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 identification.
- 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
www.usps.gov to 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
dealing with.
- 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 work done.
- Find out who has
access to your personal information at work and verify that the
records are kept in a secure location.
- 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 authorized.
- Carry only the
identification that you actually need.
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, or visit
www.consumer.gov/idtheft. |
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
www.bbbonline.org for 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
Creditors |
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. |
USE CAUTION
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 services.
|
Avoid Advance 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.
BUYER BEWARE!
ADS PROMISING “DEBT RELIEF” ACTUALLY MAY BE OFFERING BANKRUPTCY |
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. |
RESOURCES
Federal Trade
Commission
Web: www.ftc.gov
Toll-Free: 1-877-FTC-HELP (1-877-382-4357)
TTY: 1-866-653-4261
The 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, visit
www.ftc.gov or
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. 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 U.S. and abroad.
|
FEDERAL TRADE COMMISSION |
FOR THE CONSUMER |
1-877-FTC-HELP |
www.ftc.gov |
|
Identity Theft
Web:
www.consumer.gov/idtheft
Toll-Free: 1-877-ID-THEFT (1-877-438-4338)
TDD: 202-326-2502
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 Literacy
Web:
www.jumpstartcoalition.org
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 copy.
- 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 taken.
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. |
July 2003 |