learn the credit facts

Take Charge of Your Credit

Your credit record stays with you wherever you go. Future loans, credit card accounts, employment, and housing—they all require clean credit. To start creating good credit, first take a look at these basic credit facts.

Then see how to keep a clean credit history; establish strong credit protection; and stay out of credit trouble.

Manage your money right from the start. Visit the Practical Money Skills for Life site for a compilation of the best financial resources available on the Web.

Study your card agreement

Note the grace period, annual fees, cash advance fees, finance charges, and annual percentage rate (APR). If you plan to carry a balance on your account, shop around for a lower APR, even if it means paying a higher annual cardholder fee. For a quick overview card account details, go to Practical Money Skills for Life's Reading Your Credit Card Statement.

Use credit wisely

Keep track of your current purchases. Avoid large impulse purchases. Don’t use a cash advance to cover normal daily expenses. And remember the 20/10 rule: never borrow more than twenty percent of your annual net income; and never let your monthly debt payments become more than ten percent of your monthly net income.

Know your limit

Exceeding your credit limit is usually considered a violation of your account agreement and may result in additional fees or penalties, or the freezing or cancellation of your account.

Pay off your balance within the grace period

For most cards, you can avoid finance charges by paying off your total balance within an established grace period. It’s kind of like an interest-free loan for up to thirty days: purchases paid off during the current billing period do not accrue interest.

Make more than the minimum payment

Can’t pay off your total balance each month? Then at the very least, try to pay more than the minimum required. Otherwise, you’ll end up paying more than the original purchase (based on payback time and interest rate). Use the Credit Card Worksheet to estimate the amount of your next purchase.

Pay ontime—period

Be sure to get your payment in by the due date to avoid a late fee and possible credit damage.

Keep in touch

If you change your name, address, or job, notify your lending institution immediately. You don’t want to risk a late payment. Also contact your lender if you cannot make a payment on your account for any reason. They might be able to arrange special payment options that help you avoid credit problems.

Remember: credit counts for loans, too

Financial institutions evaluate you based on the “3 Cs“—character (credit history); capital (assets that can be used as collateral); and capacity (your ability to handle the added debt based on your current income, debt, and expenses).