Successful Credit Use

Credit is the ability to borrow money now and pay it back later, with interest. In a positive credit transaction both the borrower and the lender should benefit. The borrower gets goods or services immediately and the lender will have that money paid back with interest.

Building Credit

Lenders look for borrowers with a positive history of paying their bills on time. If you’ve never used credit, then you’re a mystery to lenders. If you’re at least 18 years old and have a regular source of income, you’re well on your way to qualifying for credit. However, you must demonstrate that you’re a good risk before lenders will extend credit to you. Establishing a favorable credit history is one of the smartest financial moves you can make.

If you’re unable to qualify for a credit card from a major credit card issuer, consider the following alternatives to establish a credit rating:

  • Apply for a credit card issued by a local store. Often, local businesses are more willing to extend credit to someone with no credit history.
  • Apply for a secured credit card. Basically, this type of card requires you to save the money first as collateral for your line of credit. Your credit line will be a percentage of your deposit, typically from 50 to 100 percent of your account balance. Bear in mind that some secured credit cards charge application and processing fees, and many carry a higher interest rate than traditional, non-secured cards.
  • Ask someone with an established credit history – perhaps a relative - to co-sign your credit account. By co-signing, this individual commits to repay the loan if you don’t.

Once you demonstrate that you’re a responsible credit manager by paying your bill on time and in full, major credit card issuers may be more willing to extend credit to you.

Choosing a Credit Card

Credit cards are not all the same and the card you choose should have features that fit your financial lifestyle. For example, a creditor may offer you free stuff and a low “introductory” interest rate. Unfortunately, that low interest rate will go up after a certain period of time, and you’ll pay more for credit you’ve already used. You may also be charged penalty fees if you haven’t fully paid for purchases made during the introductory period.

For the best deal, choose a credit card:

  • That doesn’t charge an annual fee;
  • That offers a low, fixed interest rate; and
  • That provides a clear explanation of fees for late payments and courtesy services, such as cash advances and balance transfers.

You can compare credit card interest rates online through a variety of websites, including, and

If you already have a credit card and you want a better interest rate, ask your creditor to match lower rates offered by other credit card companies. To keep your business, your creditor may be willing to lower your rate.

Smart Credit Use

Credit cards should not be a tool that allows us to spend more than we have. Hungry and out of cash? If you charge that $20 pizza, you could be paying it off with interest long after you’ve eaten all the leftovers.  Instead, consider your cards a safety net for emergencies, like a blown tire or a medical visit.

Here are a few more tips for using credit wisely.

Pay it off in full. You should try not to charge anything on your credit card that you can’t pay in full when the bill comes. By paying in full you avoid paying more interest on the item you purchased.

Always make more than the minimum payment. The minimum payment is the least amount that you must pay to keep your account current. Often, this is only $15-20 a month. If you charge $1,000 to a credit card with an 18% interest rate and you only pay the minimum payment, it’ll take you almost 8 years to pay it off. Plus, you’ll pay almost $700 in interest.  Even $10 above the minimum payment can save you time and money.

Have a repayment plan. Before you charge anything, take a look at your budget and see if you can find some extra cash to make your own repayment plan. If you can pay $50-100 above the minimum payment, you can pay off small items in only a few short months.

Managing Credit

The decisions you make today will affect your ability to get credit—and much more—in the future. Lenders determine whether you’re a good credit risk by checking your credit report. Your credit report is compiled by three for-profit consumer reporting agencies that collect information on your spending habits. Your credit score is determined based on this information.

So why is it so important to have good credit? It’s not just lenders that use your credit score. Employers check your credit to see if you’re likely to be a responsible employee. Landlords check your credit to see if you’re likely to pay your rent. Insurance companies check your credit to determine how risky you might be.

Developing a favorable credit history is one of the most important things you can do for your future.

Here’s how:

Pay on time, every time. This is the biggest factor in determining your credit worthiness. Always pay on time and if something comes up, be sure to communicate with your lender.

Keep your debt level low. Too much debt will affect your credit score in a negative way. Don’t max out your credit cards or borrow more than you can afford.

Keep your available debt low. Even if you rarely use the credit that’s available to you, lenders get nervous if you have a huge spending limit.

Limit new credit. If you sign up for lots of new credit in a short period of time, lenders may think you’re looking to spend money. Even if you’re actually trying to save 10%, avoid opening new accounts unless you truly need them.

Monitoring Credit

It’s also important to monitor your credit history on a regular basis to make sure your information is correct.  Mistakes on your credit report are common, but identity theft is also a growing problem. You should check your credit at least once a year.

By law, each of the three consumer reporting agencies is required to provide you a free copy of your credit history. The only website where you can obtain your free credit report is Annual Credit Report Service:  877.322.8228 (

If you’d like to order further copies of your credit report, if you have any questions or to correct a mistake, you can contact the consumer reporting agencies directly:

The Annual Credit Report Service 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. Instructions for ordering your report and addressing any errors are available on the back of your credit report or online.

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