Why Should I Care About Good Credit?

If you want to buy or lease a car, buy a home, rent an apartment, or buy a cellular phone, you will need good credit. Credit checks provide an official record of your payment history. Companies that are considering loaning money to you or leasing an apartment or car to you use credit checks to see if you are financially responsible.

If your credit history is bad, you will have difficulty getting approved for credit lines, loans, or apartment rental. A bad credit rating can stick with you for seven years.

In the event that you do get approved for something even with bad credit, vendors will offer you credit cards with higher interest rates. Bad credit classifies you as a high risk, and vendors protect their loans to you by charging higher interest rates.

How Do I Start Building My Credit?

In order to establish good credit history, you have to have a credit card and consistently make your payments on time over a period of many months.

Note: If you do not have a credit card, companies see your lack of credit history as a bad credit history, whether or not you are financially responsible.

Other accounts that require you to make monthly payments can also build your credit history. For example, your phone, water, electric, and cable bills will somewhat affect your credit history, although they are not as influential as your credit card bills. By paying your bills on time, credit rating agencies will be able to see your diligence and financial responsibility.

Credit Reports and Credit Fraud

It is a good idea to review your credit report annually. You should check for mistakes and credit fraud. You may request a copy of your credit report, for a fee of $5 or more, from one of the following credit reporting agencies:

- Trans Union: 800-888-4213
- Equifax: 800-997-2493
- Experian: 888-397-3742

If you feel that you are a victim of unauthorized or erroneous charges, you can contact your credit card vendor and the credit bureau fraud departments of:

- Trans Union: 800-680-7289
- Equifax: 800-525-6285
- Experian: 800-301-7195

Get a FREE credit report
Each year, you are entitled to one free credit report by law. Check your credit history and make sure there is no unauthorized transaction or incorrect record.

What do I do if I'm in Severe Debt?

If you think that you have lost control of your finances and you don't think that you can solve this credit problem by yourself, the following agencies may be of service:

- Debt Counselors of America: 800-680-3328
- Consumer Credit Counseling Service: 800-777-PLAN
- Debtors Anonymous: 212-642-8220

What's the Difference Between Credit and Debit Cards?

Let's start with the definition of each of these cards:

• Credit Cards

  These are cards that are issued to you by a lender and when you make a purchase using a credit card, the lender is actually loaning you money (up to a specified limit). In return you must make monthly payments, either the entire balance or at least a specified portion of it. If you choose not to make the full payment, interest is charged on any amount that is not paid off by the end of the grace period (the grace period is a number of days between when the company sends your bill to you and when they start charging interest or computing late fees). Daily interest is charged on your balance.

• Debit Cards

  These are cards that are issued by banking institutions (banks, credit unions, etc.). Debit cards deduct money from your account like checks do, but they can be used in place of credit cards as well as ATM cards. However, purchases are immediately deducted directly from your checking account balance. Thus, you can only spend the money that you have available in your account.

Both types of cards are accepted just about anywhere these days. With credit cards, you are using borrowed money, so you must ask yourself if you will be able to make your payments on a timely basis and handle the interest charges if you cannot make full payment on your balances? If you cannot, you will jeopardize your credit rating by using credit cards.

Debit cards won't charge you interest since money is deducted from your account automatically. You only spend money that you already have. However, if you have a debit card that is linked to a credit line, any amount that is overdrawn will accrue interest charges until paid off. Ask an account representative at you banking institution for more details.

Which one is right for you?

This will depend upon how much money you have and how much money you earn. You may find that a credit card is more useful than a debit card or vice versa. Once you understand your spending habits, needs, and ability to handle financial responsibility, you'll be able to choose either a credit or debit card or both.