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Credit is more than a plastic card; it is a convenient financial tool. Credit can be useful for unexpected expenses or emergencies and offers endless financial opportunities. When using credit, it is important to understand how it works, the responsibility of repaying your debt and your rights as a borrower. Use these tips to make responsible decisions about credit.
DO know the power of credit. Banks look at your credit history as an indication of your future financial behavior. By using credit wisely, you can build a good credit history. A good credit history makes it easier to get loans with low interest rates, rent an apartment, purchase a car or home, and may even help you get a job.
DO start small. When establishing credit, go to your local bank for a small loan or low credit limit. Don't be afraid to ask questions. Banks want to provide good customer service, so if you are unsure about something, ask.
DO shop around. Some companies prescreen to identify potential customers. Prescreened offers or preapproved offers are based on information in your credit report. While these solicitations are helpful, do your own research and don't select the first card you're offered. Chose a card that best suits your needs.
DO put your full legal name on all applications and be consistent. Don't leave out middle initials or suffixes like "Jr."
DO read the fine print on the credit application. The application is a contract, so read it thoroughly before signing. The credit card industry is very competitive so interest rates, credit limits, grace periods, annual fees, terms and conditions vary. Also, watch for terms such as "introductory rate" and "grace periods" that can change.
DO understand the Annual Percentage Rate or APR. Simply put APR is the interest rate or the measure of cost for credit. APR is applied to your balance to calculate interest. The finance charge shown on your billing statement is interest owed in dollar amount.
DO set a budget and stick to it. Keep track of your spending by developing a budget. Your budget is a plan for how much money you have and how much money you spend. A realistic budget will allow you to pay down your debts while saving. It will also help you keep your finances in order.
DO open your bill immediately and compare charges with receipts. This helps protect you from identity theft and unauthorized charges.
DO pay at least the minimum due. This will help you to avoid late fees and a rising APR. To pay off your balance quicker, pay more than the minimum due.
DO contact your creditor if you have trouble making payments. Let creditors know your situation and they may try to work with you to create a more manageable payment plan. Take action immediately to keep your account from being turned over to a debt collector.
DO be wary of anyone who claims they can "fix" your credit report. No one can legally remove negative accurate information from your credit history. The only thing that can fix a credit report is time and a positive payment history.
DO keep your credit card in a secure place. Only carry the cards that you think you'll use. Always have your creditor's phone number available in case your card is lost or stolen. Lost or stolen cards must be reported within 2 days to receive compensation. Be sure to close out credit accounts that you don't use.
DO order a copy of your credit report annually. You have the right to know what is in your credit report. The Fair Credit Reporting Act requires each of the 3 major credit bureaus to provide you with a free copy of your credit report at your request, once annually. Your credit evaluates your performance as a borrower and needs to be accurate. To obtain a free copy of your credit report, visit www.annualcreditreport.com.
DON'T feel pressure to get a credit card. If you don't want one, you have the right to say "no" to solicitors. If you are receiving prescreened or preapproved offers and you no longer wish to receive them, you can opt out. Call toll-free 1-888-5-OPTOUT (1-888-567-8688) or visit www.optoutprescreen.com for details.
DON'T open a lot of credit accounts within a short period of time. This may have an adverse effect on your credit report. Applying for more credit cards if you already have balances on others may also have an adverse effect.
DON'T pay your bills late. Late payments can affect your credit rating and increase your balance. If you are facing financial hardship, inform you creditors and they may be able to lower your payments.
DON'T spend more than you can afford. Understand that your credit card is a loan and you have an obligation to repay. It is your responsibility to manage your debts and to keep your commitment with lenders. Avoid reaching your credit limit or "maxing out" your cards.
DON'T ignore the warning signs of credit trouble. If you pay only the minimum balance, pay late, use cash-advances to pay daily living expenses or transferring balances you might be in the "credit" danger zone. Seek professional advice or financial counseling to regain control of your finances.
DON'T share your credit card number. Never give out credit card or personal information if you have not initiated the transaction. Know how and whom the information will be used with. Be aware of identity theft and phishing scams that ask for credit card numbers. If you suspect that you have become a victim of identity theft, 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.ftc.gov/idtheft.
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