Credit
Credit can be a beneficial tool, when used responsibly. Many people can’t buy a car, home or other big-ticket item without using credit. The following tips will help you build a positive credit record and maintain a solid credit rating.
Build a Positive Credit Record
Choose the Right Tool
Review Your Accounts
Maintain Your Credit
Additional Information
::Build A Positive Credit Record::
If you haven’t financed a major purchase, how do you establish credit? Those who are at least 18 and have a steady source of income, are well on their way to qualifying for credit. However, applicants must demonstrate they’re a good risk before lenders will extend credit to them.
If you’re unable to qualify for a credit card from a major issuer, consider these alternatives:
- Apply at a local store. Local businesses may be more willing to extend credit to someone without a credit history.
- Apply for a secured credit card. This type of card requires you to deposit money as collateral for your line of credit. Your credit limit will typically be 50 to 100 percent of your deposit. Some secured credit cards charge application and processing fees, and many charge a higher interest rate than traditional cards, so compare your options before applying.
- Talk to your bank or credit union. If you’ve successfully managed a checking and/or savings account, your financial institution may have products available that could help you build a positive credit history.
- Seek a co-signer. By co-signing, this individual commits to repay the loan if you don’t.
After you’ve proven your creditworthiness by consistently paying your bill on time and in full, major credit card issuers may be more willing to extend credit to you.
::Choose the Right Tool::
Consumers often choose a credit product based on clever marketing, like free stuff and a low introductory interest rate. 
Unfortunately, introductory rates go up over time, and if you haven’t paid the balance in full before it happens, you’ll pay more for credit you’ve already used.
When shopping for a credit card, choose one that:
- Doesn’t charge an annual fee;
- Offers a low fixed interest rate; and
- Provides a clear explanation of fees for late payments and courtesy services, like cash advances and balance transfers.
Before you apply, compare credit cards online through websites like BankRate.com and CreditCards.com
If you already have a credit card but want a better interest rate, ask your creditor to match lower rates offered by competitors. If you have a positive payment history, chances are they’ll knock off as many points as possible to keep your business. If necessary, speak to a manager. If the creditor won’t agree, consider closing the account, paying the remaining balance and applying for a card with a lower interest rate.
::Review Your Accounts::
Carefully read the fine print on your credit card agreement. Credit terms can change, so monitor your monthly statements and call your creditor immediately if you have questions or concerns. Also, check in with the company now and then to ensure you’re paying the lowest possible interest rate. Making payments on time and managing your credit responsibly may help you qualify for a lower rate.
It's also important to monitor your credit report regularly by contacting the major consumer reporting agencies.
- Annual Credit Report Service: 877.322.8228
- Equifax: 800.685.1111
- Experian: 888.397.3742
- TransUnion: 800.888.4213
AnnualCreditReport.com will provide one free copy of your credit report per year as required by the Fair Credit Reporting Act. Equifax, Experian and TransUnion will provide additional copies of your credit report and your credit score for a small fee.
::Maintain Your Credit History::
Once you’ve developed a favorable credit history, strive to maintain it. Your credit score is based on the information found in your credit report and is the tool used by lenders to determine the likelihood that you'll repay money you borrow. The FICO score is the most commonly used, and ranges from 300-850; a higher score means you’ll qualify for lower interest rates.
Your FICO score is based on five general categories:
- Payment history, 35 percent
- Amount owed, 30 percent
- Length of credit history, 15 percent
- New credit, 10 percent
- Types of credit used, 10 percent
The best way to maintain or boost your score is to pay your bills on time and in full, avoid using all your available credit and limit new lines of credit. To learn more, visit MyFICO.com.
::Additional Information::
Browse the Ask OKMM archives for answers to credit-related questions, including:
- What are ways to improve a bad credit score?
- How will applying for a department store credit card affect my credit score?
- What's the difference between good debt and bad debt?
- How do I check my credit report?
- If I max-out my credit card, make a late payment or go through a debt settlement, what effect will it have on my credit score?
