Credit Matters - Establishing and Using Credit

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Savvy Consumer - Credit Matters

Credit Matters - Establishing and Using Credit

A credit card is a great financial tool. It can be more convenient to use and carry than cash, and it offers valuable consumer protections under federal law. At the same time, it's a big responsibility. If you don't use it carefully, you may owe more than you can repay, damage your credit rating and create credit problems for yourself that can be difficult to fix.

Chances are your mail is full of offers from credit card issuers. How do you know if the time is right for a credit card? Here is some important information that may help you determine whether you're ready for plastic, what to look for when you select a company to do business with, and how to use your credit card responsibly.

Please note that this guide was designed primarily for a U.S. audience. While many of the general topic areas may be relevant in other parts of the world, specific details are U.S. based.

Qualifying for a Credit Card

If you're at least 18 years old and have a regular source of income, you're well on your way to qualifying for a card. But despite the invitations from card issuers, you'll still have to demonstrate that you're a good risk before they grant you credit. The proof is in your credit record. If you've financed a car loan or other purchase, you probably have a record at a credit agency (CRA) (The most common type of CRA is the credit bureau). This credit history shows how responsible you've been in paying your bills and helps the credit card issuer decide how much credit to extend.

Before you submit a credit application, get a copy of your report to make sure it's accurate. Contact the credit bureaus listed in the telephone directory under "credit" or "credit rating and reporting." Because more than one credit bureau may have a file on you, call each until you locate all the agencies maintaining your file. The three major credit bureaus are:

Anyone who takes action against you in response to a report supplied by a CRA – such as denying your application for credit – must give you the name, address and telephone number of the credit bureau that provided the report.

Establish a Good Credit History

Suppose you haven't financed a car loan, a computer, or some other major purchase. How do you begin to establish credit? First, consider applying for a credit card issued by a local store and use it responsibly. Ask they report to a credit bureau. If they do – and if you pay your bills on time – you’ll establish a good credit history.

Second, consider a secured credit card. It requires that you open and maintain a bank account or other asset account at a financial institution as security for your line of credit. Your credit line will be a percentage of your deposit, typically from 50 to 100 percent. Application and processing fees are not uncommon for secured credit cards. In addition, secured credit cards usually carry higher interest rates than traditional nonsecured cards.

Third, consider asking someone with an established credit history -- perhaps a relative -- to co-sign the account if you don't qualify for credit on your own. The co-signer promises to pay your debts if you don't. You'll want to repay any debt promptly so you can build a credit history and apply for credit in the future on your own.

A positive credit history is an asset, not only when you apply for a credit card, but also when you apply for a job or insurance, or when you want to finance a car or a home.

If Your Application Is Denied

If you're turned down for a card, ask why. It may be that you haven't been at your current address or job long enough. Or that your income doesn't meet the issuer's criteria. Different credit card companies have different standards. But if you are turned down by several companies, it may indicate that you are not ready for a credit card.

If you've been denied credit because of information supplied by a credit bureau, federal law requires the creditor to give you the name, address and telephone number of the bureau that supplied the information. If you contact that bureau within 60 days of receiving the denial, you are entitled to a free copy of your report. If your file contains accurate negative information, only time and good credit habits will restore your credit-worthiness. If you find an error in your report, you are entitled to have it investigated by the credit bureau and corrected at no charge.

You should dispute any inaccuracy in your report with the credit bureau and also with the company that furnished the information to the credit bureau.

Get the Best Deal

Fees, charges, and benefits vary among credit card issuers. When you're choosing a credit card, shop around. Compare these important features:

Kinds of Credit Accounts

Credit grantors generally issue three types of accounts. The basic terms of these account agreements are:

Protect Your Credit

Once you get a card, sign it immediately so no one else can use it. Note that the accompanying papers have important information, such as customer service telephone numbers, in case your card is lost or stolen. File this information in a safe place.

Call the card issuer to activate the card. Many issuers require this step to minimize fraud and to give you additional information.

Keep your account information to yourself. Never give out your credit card number or expiration date over the phone unless you know who you're dealing with. A criminal can use this information to steal money from you, or even assume your credit identity.

Keep copies of sales slips and compare charges when your bill arrives. Promptly report in writing any questionable charges to the card issuer.

Don't lend your card to anyone, even to a friend. Your credit privilege and history are too precious to risk.

You're Responsible

While a credit card makes it easy to buy something now and pay for it later, you can lose track of how much you've spent by the time the bill arrives if you're not careful. And if you don't pay your bill in full, you'll probably have to pay finance charges on the unpaid balance. What's more, if you continue to charge while carrying an outstanding balance, your debt can snowball. Before you know it, your minimum payment is only covering the interest. If you start having trouble repaying the debt, you could tarnish your credit report. And that can have a sizable impact on your life. A negative report can make it more difficult to finance a car or home, get insurance, and even get a job.

Federal Protections

Federal law offers the following protections when you use credit cards.

For More Information

The Federal Trade Commission (FTC) works for the consumer – providing the information needed to spot and avoid fraud and deception in the marketplace. Access the more than 150 consumer publications offered by the FTC online at Or get a free copy of Best Sellers, a list of FTC publications, by calling 1-877-FTC-HELP, or by writing to Consumer Response Center, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Washington, DC 20580.

The Consumer Information Center (CIC) publishes the Consumer Information Catalog which lists more than 200 booklets on a wide variety of subjects, including credit. Access the Catalog and its full-text entries at Or write: Catalog, Consumer Information Center, Pueblo, CO 81009. Or call them at 719-948-4000.

American Express Company offers free consumer booklets on a variety of credit subjects. To order, contact: American Express, P.O. Box 4635, Trenton, NJ 08650-4635. For more information about students and credit, visit Or access American Express Company at

American Express Educational Loans helps students and parents secure the financing they need to pay for a college education. Educational Finance Specialists are available 7 days a week, from 9:00 a.m. to 11:00 p.m. Eastern Time, to explain your financial aid options and walk you through every step of the process. For information on your college financing options, call 1-888-756-4643. Or visit

Published by American Express Company in cooperation with the Consumer Information Center. Information was prepared with the assistance of the Federal Trade Commission. Copies may be reproduced for non-profit educational purposes.

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