You need credit to purchase important things that you cannot pay for in full at the time of purchase, e.g., cars, homes, and tuition. Also, you often need a credit card to serve as collateral when you rent or reserve cars, hotel rooms, etc. Without credit you would have to pay in full with cash for every purchase, which can be very inconvenient and even impossible in some cases. With a solid credit history, creditors will not consider you a risk and are more likely to approve your request even if they have never done business with you before.


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Start small. This is a good way you can show yourself and others that you can manage money responsibly. From there, you should be able to qualify for a low-limit credit card which, if you make timely payments, can lead to higher credit limits and a more established credit history.


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The typical ages at which one can apply for credit are 18 or 21. This age varies according to state law. To establish credit you might have to apply for a secured credit card or have a responsible party cosign(i.e., take responsibility) for your credit. For more advice and information on how to establish and maintain good credit visit the Jump$tart Coalition.

Bear in mind, at any age it takes time and effort to build a solid credit history. Fair, Isaac and Company (FICO) gives the following guidelines:

"In order for a FICO® score to be calculated on your credit report, the report must contain at least one account which has been open for six months or greater. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough information and enough recent information in your report on which to base a score."


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Common wisdom says that your nonmortgage monthly installment payments(e.g., credit card, car, student loan payments) should not total more than 20% of your monthly take-home pay. In other words, if your paychecks come out to $1,000 a month, your total payments shouldn't be more than $200. If you plan on qualifying for a home or making some other major purchase in the near future, you will probably want to further reduce your monthly payments.


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The answer depends on how you use your credit cards. If used wisely and in moderation, credit cards can help you build a solid credit history. Make regular payments and keep your monthly balance well below your credit limit in the months when you can't pay in full. Try to reduce the number of credit cards you use to avoid confusion and potential missed payments. Discontinue credit cards you aren't using. Watch your statement closely to protect against ID fraud. If you follow these guidelines, credit cards can be a great convenience and a boost to your credit standing.


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Live by a realistic budget. Let your budget be your guide to spending, not your credit limit. Make timely payments at or above your minimum required payment. Don't overextend yourself. Maintain steady employment. Keep close track of your expenditures and your bills to guard against credit fraud. If you plan on making a major purchase on credit, order a copy of your credit report before hand and review it for negative entries that might need to be resolved.


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Only time and solid credit performance can improve a negative creditrating. Here are some recommendations that can help you improve your credit rating:

  • Make sure you pay off your debts promptly and reliably.
  • If you have trouble controlling spending, look into a consolidation loan from your bank. Then you can save your credit cards for emergencies.
  • Set and stick to a budget that helps you keep your debt at a manageable level.
  • Ensure your credit reports are accurate by regularly checking them and rectifying discrepancies with the credit reporting agencies.
  • If you're having trouble qualifying for credit, consider a secured credit card. These cards use collateral to alleviate risk for the lender. 

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The key is to live within your means. Track your spending and see what expenses you might be able to cut back on. Look for sales or coupons to help you save wherever possible. A lot of overspending is due to laziness. If you have trouble with credit cards, cut them up until you can reduce you credit card debt to a manageable level. For most people, a little debt is necessary but keep it as low as possible. Lowering debt is one of the best keys to financial security.

For more information and to request a free brochure entitled How to Be Credit visit the AFSA Education Foundation.


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Avoid "credit repair" clinics that charge you money with the promise of giving you a "fresh start." Only time and proper credit use will improve your credit record. However, you can get free, or very inexpensive, help from respected credit counseling organizations suchas Amerix or Consumer Credit Counseling Services [(800)
251-2227].

If you cosign a loan or authorize someone to charge to your credit cards, you are still responsible for the debt. Even if your friend or relative promises to pay you back, the debt is still your responsibility and failure to pay will affect your credit rating.


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Beware of "credit repair" clinics that claim to be able to wipe your record clean or give you a "fresh start." Only time and proper use of credit can improve your credit standing. If you feel there is incorrect information in your credit report that is hurting your credit rating, contact the credit bureau directly.


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Credit fraud can occur when a credit card or credit card number is stolen and used by an unauthorized consumer. Another form of credit fraud is ID theft, where the perpetrator assumes the identity (and hence, credit history) of someone else to open an account. If you have lost a credit card or suspect that it has been stolen, notify the issuer of the card immediately. If the issuer determines that improper or illegal activity has occurred you may need to contact the credit bureau's fraud department as well. For more information and to read instructions on guarding against and reporting credit fraud go to http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre07.shtm.


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A credit report, or credit history, is a record of the money you have borrowed and repaid, as well as relevant public records (such as bankruptcies) and inquiries made to your credit history. This information is contributed by participating creditors. Your credit report is often used by creditors to determine your eligibility for credit.


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According to Fair, Isaac and Company (FICO), the institution which provides score information to all three major credit bureaus, the factors that contribute to your FICO® credit score may include:

  • Payment history
  • Amounts owed
  • Length of credit history
  • New credit and credit inquiries
  • Types of credit useFor more detailed information on the factors that can contribute to your credit score, visit myFICO or the Federal Reserve Board.

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You can order a copy of your credit report from one of the three national credit-reporting agencies: Experian, Equifax, or Trans Union. You may be able to get a free copy of your report if you have been denied credit within the past 30 days. Otherwise, each agency sets its own retrieval fee.


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You should ask the creditor for the main reason(s) you were declined and the credit bureau that supplied the credit report. If you feel that these reasons are unfounded, you should request a copy of your credit report from the credit bureau (typically Equifax, Experian, or Trans Union). You may want to ask a responsible friend or relative to cosign for the loan (remember, you can't build your own credit on a cosigned loan). Also, as each creditor has its own criteria for accepting or declining credit, you may consider approaching a different creditor to see if you can qualify under different terms. Otherwise, make a plan to rectify your credit standing and put off your purchase for a while.


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The Fair Credit Reporting Act (FCRA) was passed by Congress to ensure that credit reporting agencies keep accurate, fair, and private records of your credit history. According to the Federal Trade Commission, the FCRA entitles you to the following rights.

  • You must be told if information in your file has been used against you.
  • You can find out what is in your file.
  • You can dispute inaccurate information with the credit reporting agency.
  • Inaccurate information must be corrected or deleted.
  • However, the credit reporting agency is not required to remove accurate data from your file unless it is outdated or cannot be verified.
  • You can dispute inaccurate items with the source of the information.
  • Outdated information may not be reported.
  • Access to your file is limited.
  • Your consent is required for reports that are provided to employers, or reports that contain medical information.
  • You may choose to exclude your name from credit reporting agency lists for unsolicited credit and insurance offers.
  • You may seek damages from violators in some circumstances. 

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If you feel that a negative entry has been made unfairly or accidentally to your credit report, there are a number of methods of recourse. First, try to resolve the situation first with the creditor in question. Keep detailed documentation of all your correspondence with the creditor. Second, ask the bureau which supplied your credit report to investigate the entry. Third, if the first two methods do not resolve the issue you can file a complaint through the Federal Trade Commission. For detailed instructions on filing a complaint visit the Federal Trade Commission.


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You and your spouse each have your own personal credit rating. If you apply jointly for a credit card or loan, creditors may consider both credit ratings in evaluating the risk of lending you money. For this reason, you should establish your own credit, based on your own credit records and earnings. Your own credit means a separate account or loan in your own name, not a joint account with your spouse or a duplicate card on his/her account. If you are widowed or divorced and feel that it is hurting your ability to get credit in your name, you have certain protections under the law. For more information visit the Federal Reserve Board.


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You should assess your income and expenses to determine how much you can afford. Make sure you take into account all monthly payments and expenses including rent or mortgage payments, utilities, and insurance, as well as variable expenses such as food, clothing, credit card payments, and recreation. Whatever money is left over should be used to determine what kind of monthly payment you can afford. Also, be sure to get an insurance quote on the vehicle you're considering and include that in your estimation.


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You can save more money with a larger down payment, which will typically help to lower your monthly payment. You can also consider trading in your current vehicle in place of or in addition to your down payment. Also, leasing plans will generally carry lower monthly payments - check with your auto financing provider for more details. For more information and to request a free brochure entitled Keys to Vehicle Leasing visit the AFSA Education Foundation.


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There's no right or wrong answer. You need to determine what better fits your needs. Generally, leases are better for those who drive 15,000 or fewer miles per year, take excellent care of their vehicles, and want a new car every 2-4 years. Leases also enable you to get a bigger, better-equipped car than you could afford to purchase, and you only have to pay for the portion of the car's life that you use. Financing is ideal for those who drive a lot of miles, put their vehicles to heavy or rough use, and want to build equity through ownership of a vehicle. Financing also gives you the freedom to treat your car as you please: sell, customize, trade, etc. As for maintenance and operating costs, there's no difference at all. For more informationand to request a free brochure entitled Keys to Vehicle Leasing visit the AFSA Education Foundation


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Notify your creditor immediately and explain your situation. In some cases, you may be able to arrange alternate payment plans at a different interest rate. If you wait until you miss a payment it could negatively affect your credit record, which is much harder to rectify.


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