Other LanguagesCredit Cards and Debt
| In this Section | |
| Earning Credit | |
| Managing Credit | |
| Repairing Credit |
Credit, the granting of a loan and the creation of debt, can come in many different forms. Credit cards, car loans, and store credit are all common methods of borrowing money on a deferred payment system. All this is just a fancy way of saying that you’re borrowing money you don’t have, to make purchases you may or may not need. It would be difficult to exist in modern society without credit, but you should also carefully manage your debt. Bad credit can be worse than no credit at all.
For many of us just starting out on our own it can be difficult to know how to obtain credit, although it’s easier than one might think. Most companies require a credit history, a report of your credit activity, before they will issue you a credit card or loan. They use this history to determine if you are likely to repay the money that they lend you.
If you’ve never used credit, you can consider:
- Opening a checking or savings account in your name;
- Applying for a line of credit with a local store (locals are more likely to give you credit);
- Establishing a pre-arranged line of credit with your bank;
- Asking someone with good credit to co-sign on a credit application (the co-signer agrees to pay back your loan if you can’t).
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More Information on Credit: |
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Federal Trade Commission's Getting Credit |
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Credit and Debt by the Attorney General's Office |
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Department of Financial Institutions's Credit Information Page |
Many credit card companies specifically market to students. These offers may sound tempting, but know that your interest rates (the amount of money that you pay to the company on top of the amount that was borrowed) will be through the roof because you’re a first time borrower. Interest rates and lack of spending control are the primary reasons that the average college senior is over $4,000 dollars in debt.
Managing Credit
Excessive credit debt is a serious problem that frequently begins right after high school. Although we all
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Do the Math! |
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Click HERE to find out how long it will take you to pay off your current credit card balance |
start out with the intention to pay off our cards at the end of every month, we can sometimes lose control of our ability to keep up with the bills. In order to maintain good credit, it’s important to:
- Closely monitor your credit report
- Pay all of your bills on time
- Minimize the number of credit cards and loans that you have
- Avoid collection actions
- Protect your credit
If you’ve fallen behind on your bills, it is important to communicate directly with your creditors when possible. If you are going to be late on a bill, or cannot make the minimum payments, call them as soon as possible to see if there’s any adjustments that can be made.
If you are having trouble communicating with the credit companies, you may wish to contact a non-profit or government agency that can provide assistance. The National Foundation for Credit Counseling offers a list of local resources and free debt counseling services. A counselor from one of these member agencies will help you set up a budget and reduce your reliance on credit. They can also, where the circumstances are right, assist in arranging a repayment plan between you and your creditors. The toll free number for 24 hour automated office listings is 1-800-388-2227.
We see a lot of commercials for companies that claim they can fix credit problems. These companies, sometimes called "credit repair clinics," often promise to erase or ease your debt, when in fact they are offering assistance filing for bankruptcy. According to the FTC sit, Getting Credit, bankruptcy can stay on your credit history for 10 years and will affect your ability to get credit in the future. If you have legal questions regarding the benefits and consequences of bankruptcy, you should consult an attorney not a salesman.
Similarly, some students are trying to reduce their debts by paying so-called “debt reduction companies” to help get them out of the red. These services are advertised on radio, TV, and the internet to lure customers into paying huge fees for work that you can do on your own for free! The “debt reduction” promises often come at a high price to the unsuspecting consumer when the service is never provided or these firms over promise what can actually be done to help.
Sometimes these companies also offer to sell you services that you could actually have for free. It’s important to know that you don’t need to pay anyone to view or correct your credit report. Everyone is entitled to view a copy of their credit report at least once a year.
You should also watch out for “non-profit” companies that pay little attention to counseling you on personal financial discipline and, instead, aggressively seek “contributions” for debt restructuring and debt consolidation services. Consumers are often referred to loan companies affiliated with the “non-profit” organization and find themselves in a worse financial position than they were prior to contacting the debt consolidator.
Remember: No one can fix your credit history or repair your debts but you, through the sound management of your money.