Establishing your credit
Even if you've never taken out a loan or made a major credit card purchase, there are several ways to start establishing your credit history:
- Open a checking or savings account. While they won't create credit, their existence will indicate that you have money and show how you manage it to lenders and creditors.
Remember, in order to establish a good credit history, it is important to always pay your bills on time and never borrow or spend more than you can afford.
* See our Unsecured Credit Card section for offers to help establish your credit.
Qualifying for a credit card
If you are at least 18 years old and have a regular source of income or savings, you're on your way to qualifying for a credit card. But you still have to demonstrate that you're a good customer. The proof is in your credit history, which lists the amount of credit you've received and how faithfully you've paid it back. If you’ve financed a car loan or any other purchase, you probably have a record at a credit reporting bureau. This credit history shows how responsible you’ve been with paying your bills on time and helps the credit card issuer decide how much credit to extend to you.
Before you submit a credit application, get a copy of your credit history to make sure it's correct. Contact a credit bureau listed in the Yellow Pages under "credit rating and reporting." To order a copy of your credit report, contact Equifax, TransUnion, or Experian. There is a small fee, usually $8, but if you visit our credit reports section. you can get a FREE copy of your credit report instead.
Choosing a credit card
Today's consumers are presented with a wide array of credit card choices—cards with low annual percentage rates, cards with no annual fees, rebate cards, gold cards, platinum cards, etc. So, how do you choose one?
Before selecting a card, be sure you know which credit terms and conditions apply to the account. Do you expect to pay your bills in full each month, or do you plan to pay off your purchases over time?
Consider the annual fee, finance charges, balance computation method, and whether or not there is a grace period for purchases.
* For more information on how to choose, see our article Choosing The Right Credit Card .
If your credit application is denied
If you've been denied credit for any reason, you should receive a written explanation from the financial institution describing the reasons for your denial. If you were denied because of information supplied by a credit bureau, federal law requires the creditor give you the name of the bureau that supplied the information. You
have 60 days to contact the credit bureau if you would like a free copy of your credit report. If you find an error in your report, you are entitled to have it investigated by the credit bureau and corrected at no charge. However, if negative information on your credit file is accurate, only time and responsible credit habits can help restore your credit history.
It's important to note that financial institutions must make credit equally available to all creditworthy applicants. Under the Equal Credit Opportunity Act, you have certain rights that protect you against unfair credit discrimination. Under this Act, you cannot be denied credit because of:
- Age (unless you are under 18)
- Marital status
- National origin
- Income derived from public assistance
- Intent to have children
- Birth control practices
You can only be turned down for credit based on:
- Your credit history
- A current or former spouse's credit history
- Other financial information
If you suspect discrimination by a bank, savings and loan or credit union, ask for the name and address of the federal agency that enforces the Equal Credit Opportunity Act (depending on the institution, this will be either the Office of the Comptroller of the Currency. the Federal Deposit Insurance Corporation. the Office of Thrift Supervision or the National Credit Union Administration ). The Equal Credit Opportunity Act mandates that the creditor must give you this information. Not every institution can act on your individual case, but they can track your complaints, along with other similar ones, in order to find a pattern of discrimination.
If you suspect discrimination by a retail or department store, finance or mortgage company, utility, state credit union or government lending program, contact:
- Consumer Response Center
Federal Trade Commission
Washington, DC 20580
The Federal Trade Commission (FTC) cannot intervene in individual disputes. However, the information you provide can show patterns of discrimination in which the FTC can act.
You can also direct complaints against all types of creditors to:
- Department of Justice
Civil Rights Division
Washington, DC 20530
Because credit cards make it easy to purchase things now and pay later, it's easy to lose track of how much you've spent. Make sure you pay all of your bills on time and only get the credit cards you need—don't get a card just because the issuer is giving away a cool gift.
To establish and maintain good credit, it is important to pay at least the minimum amount due every month and to pay on time. Allow five to seven business days for payments made by mail. Use your credit card wisely as a beneficial financial tool. Do not fall into the trap of charging every single little thing you come across just because you can. This will leave you with a huge debt you can't afford.
There are easy ways to keep your spending on track. Perhaps the easiest is to record your credit card purchases in a notebook. There are also a wide variety of software programs, such as Quicken®, available to help you manage your finances.
Lastly, take advantage of the services your financial institution offers. Through online banking, for instance, you can see your account activity on a daily basis and even arrange to make electronic payments over the Internet.