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Best Student Credit Cards |
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CREDIT CARD RATINGS |
About Credit in the United States
Installment loans let you borrow a fixed amount and pay it back
in fixed monthly payments. A good example is a car loan, where
you will borrow enough to buy the car and then pay it back over
two to five years. Revolving accounts or “lines of credit” give you a certain amount you can borrow against (your “credit limit”). You can usually then
pay the balance off in full or make smaller minimum payments. A
good example of a revolving account is a credit card. Warning! The minimum required payments on most credit cards
is so small that even a balance of $500 -- $1000 can take years to
pay off if you only make the minimum payment each month.
Some loans are secured which means you pledge collateral the
lender can “repossess,” or take back, if you don’t pay the loan
as agreed. Most car loans and home loans are secured loans.
Other loans, especially credit cards, are unsecured, which means Getting Approved One of the reasons credit is so widely available in the United States is because we have a strong credit reporting system.
Credit reporting agencies (also known as “credit bureaus”) are
companies that collect information about how consumers pay their
bills, and sell that information as credit reports to businesses that
may use them for credit, insurance, or employment purposes.
Credit reports contain four basic categories of information, including
personal information (name, current and previous addresses,
Social Security Number), account information (credit accounts Equal Credit Opportunity Act Under a federal law called the Equal Credit Opportunity Act,
creditors cannot discriminate against you because of your age,
gender, marital status, race, or country of national origin.
Types of accounts typically included in a credit report
include: Credit cards Some creditors will only report your account if you are late on yourpayments, but not if you pay on time. Cellular phone companies
are a good example of this. They generally only report accounts
that have not been paid and have been turned over to collection
agencies. The same is true of most medical providers. Since
companies are not required to report information to credit
reporting agencies, not all do. Some will report to one or more
major credit reporting agencies, but not all three of them.
When you are establishing credit, your goal should be to get
accounts that will be reported each month to all three of the
major credit bureaus. Be sure to pay each bill on time or you
may risk a late payment on your credit report. Late payments
stay on your report for seven years and make it more difficult
to get credit at good rates and terms. It’s In The Numbers When you go into many retail stores in the U.S., you may be offered an opportunity to apply for a credit card “instantly.” How is
it that companies can offer credit on the spot? It’s because they
use credit scores that predict how likely someone is to pay their
bills in the future.
Most credit scores are created by a company called Fair Isaac,
which creates what are called “FICO” credit scores. To create a
credit score, information in credit reports, account histories, or
credit applications is evaluated to find out what consumers who
pay their bills on time have in common and then they are assigned
a number, and that is their credit score.
According to Fair Isaac, the factors that make up your credit score
fall into five main categories: Payment history 35% The most important factors in a score are your payment history
and the amounts you owe. If you have few or no credit accounts
that have been reported to the credit reporting agencies then you
may have no credit score, or your score may be low due to little
credit experience.
Credit scores usually fall between 350 and 850. A score below
650 is usually considered quite low (risky) and therefore it will be
difficult to get credit at the most favorable terms. A score of 650
– 680 is still risky but credit is generally available at less favorable
terms. A score of 680 – 720 is better, while a score of 720 and
above is usually considered very good. Keep in mind that every
creditor has its own policies, and each one may look at the same Getting Started Millions of Americans don’t have credit histories because they
haven’t established credit with traditional lenders. These
consumers may rent their homes or apartments, use checkcashing
outlets for payday loans, or buy their furniture and
appliances from rent-to-own stores. There are efforts underway
to give these consumers some “credit” for paying those kinds of
bills on time. Getting Your First Credit Card To get your first credit card, you may need the following: • Valid Social Security number or Tax Identification number
(see below)
Students Social Security numbers
• Read your credit card agreements and the correspondence you get from issuers. There may be important information in them. For example, credit card issuers can generally change your interest rate with only 15 days written notice – even on a card with a fixed rate. • Always mail your payments for your credit cards at least 5 business days before the due date. Most credit card companies have steep late payment penalties. In addition, your interest rate on new purchases as well as any current balance may be raised to a very high rate if you are late. • If you pay your debts late, a late payment will likely to
be reported to the major credit bureaus and will stay
on your credit report for seven years. Your other credit
card issuers may raise your interest rates if they see you
are falling behind on other accounts. • Call the credit card company if you can’t make a monthly
payment on time. Ask them about alternative
payment arrangements that won’t damage • Notify your credit card issuer 30 days before you move, and don’t assume that just because you didn’t get a bill you don’t have to pay it. If a bill doesn’t arrive, call your card issuer or lender immediately. • Try to pay off your total balance each month. Just paying the minimum is a trap. If you pay just the minimum of a $1,000 debt on a card with an 18% interest rate, it will take you more than 12 years to repay. • Aim to keep your debt payments at less than 10% of your income after taxes. If you take home $750 a month, for example, spend no more than $75 a month on credit.
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