Introduction to Credit

Introduction to Credit In this section, you'll find out: What is credit? Why do I need credit? What is a credit report? Why is it important to establish a good credit history? How do I establish a good credit history?

Credit is a privilege and a convenience. Credit lets you charge a meal on a credit card, pay for an appliance on an installment plan, take out a loan to buy a house, or pay for schooling. Credit allows you to make a purchase without ready cash.

A credit card enables you to buy things now and pay for them later. You get credit by promising to pay in the future for something you receive in the present. But, there are strings attached to credit. Credit usually costs something, and what is borrowed must be paid back.

Credit gives a number of benefits you don't get when paying with cash or checks:

• Convenient, hassle-free shopping. When you use a credit card to make a purchase, you don't have to carry a lot of cash, pay by check, or present additional identification. A credit card also simplifies and speeds up catalog ordering and currently is virtually the only way to make Internet purchases.
• Emergency protection. Credit cards are the ultimate financial security blanket. They can get you through nearly any emergency situation.
• Easier budgeting. With a credit card, you can make purchases and pay them off on a schedule that fits your budget. Credit cards also allow you to take advantage of sales and special offers.
• Security. If you lose cash, it can be used by anyone. If you lose a credit card and report the loss to the card's issuer before it is used, the issuer cannot hold you responsible for any unauthorized charges. If a thief uses your card before you report it missing, the most you will owe is $50.
• Travel expenses. You'll find that a credit card is almost essential for renting a car, purchasing an airplane ticket, or booking a hotel room. Whether you're across town or on another continent, a credit card is the universal guarantee of your good financial standing. And if you need cash, you can get it at ATMs or banks around the world that accept your credit card.

When you apply for credit, the lender reviews your credit report before approving your application. The three major credit reporting agencies are Equifax, Experian, and TransUnion. These agencies, which are also called "bureaus," collect and report information about consumers' financial habits and put the information into a credit report. Each agency's reports contain the same basic information: name, Social Security number, current and previous addresses, details about loans and how they've been handled, public record information such as bankruptcies, court judgments, or liens, and a list of companies that have reviewed the credit report.

Establishing a good credit history is an important part of your personal and financial future. It can help open doors for you or keep them locked. A variety of people and businesses make decisions affecting your future that are based on your credit history. Banks and other lenders consider your credit report when reviewing applications for mortgages, revolving lines of credit or other loans. Landlords sometimes use credit reports to decide among rental applicants. And a potential employer may even assessan applicant's credit report prior to extending a job offer. Your credit report may also be reviewed when you apply for auto insurance or homeowner's insurance, or even a mobile phone. That's why it is so important to establish a positive credit history.

In short, by consistently paying your bills on time. Remember, to establish a good credit rating you should always pay at least the minimum amount due every month by the due date.

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