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     What is credit and what's it used for?
     Why is it important to establish "good" credit?
     How do I start establishing good credit?
     What is a credit report and what's it used for?
     Credit Glossary: Important credit terms!
 
What is credit and what's it for?

Credit is a privilege and a convenience that allows you to make a purchase without cash. You get credit by promising to pay in the future for something you receive in the present. But, there are strings attached. Credit usually costs something (interest), and what is borrowed must be paid back.

Credit cards are the most common form of credit. Other common types of credit include home mortgages, auto loans, student loans, small business loans, trade financing, etc.


 Why is it important to establish "good" credit?

Establishing a good credit history is an important part of your financial future. It can open doors -or- it can shut them down. Good credit makes it easier to get loans, credit cards, and better interest rates when you borrow. Bad credit, on the other hand, makes it harder to get a loan or lower interest rates.

Besides affecting loans and interest rates, a variety of people and businesses make decisions affecting your future based on your credit history. Landlords sometimes use credit reports to decide among rental applicants. And a potential employer may even assess an applicant's credit report prior to extending a job offer. Your credit report may also be reviewed when you apply for auto insurance or homeowner's insurance, or even a mobile phone.


 How do I start establishing good credit?

In short, you can establish a good credit history by consistently paying your bills on time. Remember, to establish a good credit rating you should always pay at least the minimum amount due every month by the due date.

  Go to Establishing Credit for more information about how to establish your credit...

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 What is a credit report and what's it used for?

When you apply for credit, the lender reviews your credit report before approving your application. Think of a credit report as a resume. It details how well you have paid your bills and used financial tools such as credit cards and checks.

Just like a report card or a resume, a credit report is used to document your performance; in this case, your financial performance.

The report details how well you pay your bills, bank loans and credit card purchases. It also can indicate if you have abused financial tools such as checking accounts and debit cards. Even debts of small amounts, if not paid on time, can hurt your credit standing.

The three major credit agencies which monitor this activity are Equifax, Experian, and TransUnion. These agencies, also called "bureaus," collect and report information about your financial habits and put the information into a credit report.

Below is a list of information that can appear on a credit report:

  • Your name, Social Security number, birth date and current and previous addresses.
  • Information about your employers, both current and previous.
  • Your payment history with major credit cards, department store charge accounts and loan payments.
  • Your payment history with utility and telephone services.
  • A list of your accounts (if any) that have been referred to a collection agency.
  • Inquiries made about your credit history that have been made over the past several years, and whether or not you were granted credit.
  • Public record information: such as bankruptcies, foreclosures, and tax problems.

Information on a credit report can remain for many years. (This is often referred to as your "credit history.") Since this report is used by others to make important decisions affecting you, it is important to review your credit report for accuracy once a year.

  * See our Credit Report section for more information.

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 Important terms you should understand!

The following credit industry terms are broadly defined below. But they are no substitute for the detailed definitions provided in an Account Agreement, Supplemental Disclosure, or Terms and Conditions. Always read the specific Disclosures for any credit account issued to you.

Annual Fee
A bank charge for use of a credit card each year and billed directly on the customer's monthly statement.

Annual Percentage Rate (APR)
The interest rate reflecting the total yearly cost of the interest on a loan, expressed as a percentage rate. Under the federal Truth in Lending Act, it must be calculated in a standard way to allow consumers to make "apples-to-apples"comparisons of lending terms.

Authorization
An Authorization occurs when you present your card or account number to a merchant for payment. An authorization reserves the purchase amount against your available credit to ensure that the credit is available at the time the transaction posts to your account.

Average Daily Balance
This is a method by which many creditors calculate Finance Charges. Adding each day's balance and dividing that total by the number of days in a Billing Cycle determines an Average Daily Balance. The Average Daily Balance is typically multiplied by the Periodic Annual Percentage Rate in order to calculate the amount of Finance Charges assessed on an account.

Available Credit
Available Credit is the amount of credit you have available to use for Purchases, Balance Transfers and Cash Advances.

Automated Teller Machines (ATMs)
ATMs are self-service machines that dispense cash and process deposits.

Balance Transfer (BTs)
A Balance Transfer is the process of transferring a balance from one credit account to another.

Billing Cycle (Billing Period)
The Billing Cycle is the period between billings for products and services - usually a month.

Carrying a Balance
Carrying a Balance means the balance revolves on an account from one month to another. When a cardholder carries a balance he/she does not pay the balance in full every month.

Cash Advance
A Cash Advance allows you to obtain cash from your credit card account. Please note there may be restrictions on the amount you may withdraw. Typically, a Cash Advance is obtained through a financial institution or an Automated Teller Machine (ATM).

Cash Advance Fee
A Cash Advance Fee is a charge by the bank for using a credit card to obtain cash. This fee can be stated in terms of a flat per-transaction fee or a percentage of the amount of the Cash Advance.

Cash Advance Limit
The Cash Advance Limit is the established limit to which cardholders can withdraw cash from their accounts. This limit is typically established as a percentage of the Credit Line.

Credit Payment Insurance
Credit Payment Insurance is a credit protection service offered by some creditors to their customers. It assists customers in maintaining a good credit rating in times of financial difficulty.

Credit
A Credit on your statement reflects any monetary transaction other than a payment that decreases your Outstanding Balance.

Credit Limit (Credit Line)
The Credit Limit is the total amount of credit extended to the customer by the lender.

Credit Reporting Agency (Credit Bureau)
A Credit Reporting Agency compiles data on consumers' credit payment history. Trans Union, Equifax, and Experian are the three major Credit Reporting Agencies in the United States.

Credit Report
The Credit Report is a critical factor in credit scoring systems that lenders use to issue credit cards, mortgages, or other loans. A Credit Report contains information regarding a customer's payment history and comes from a Credit Reporting Agency.

Creditor (Card Issuer)
A Creditor is an entity to whom money is owed.

Current Balance
The Current Balance is the total amount of credit spent on Purchases, Balance Transfers, and Cash Advances. This balance may include Finance Charges and fees.

Daily Periodic Rate
The Daily Periodic Rate is used to calculate the amount of Finance Charges assessed on an account. It is typically calculated by dividing the Annual Percentage Rate by 365.

Delinquency
A Delinquency means that payment is overdue on an account.

Finance Charge
Finance Charge is a fee for using credit. It is comprised of interest charges and other fees.

Fixed Interest Rate
A rate of interest charged on an account. This rate is in effect for the life of the loan, provided the account remains in good standing. This rate will not fluctuate based on the Prime Lending Rate.

Grace Period
If the cardholder does not carry a balance, the Grace Period is the interest-free period of time a lender allows between the transaction date and the billing date. The standard Grace Period is usually between 20 to 30 days.

Introductory Interest Rate
A rate of interest charged on an account for a specific, limited period of time. This rate is typically lower than the Ongoing Rate and is used by the creditor as an incentive.

Late Fee
A Late Fee is a charge to your account if the minimum payment due does not reach the lender by the payment due date.

Minimum Payment Due
The Minimum Payment Due is the smallest amount you must pay each month to keep your account in good standing. Your minimum payment can vary from month to month based on your current balance and is typically based on a percentage of the Outstanding Balance. You can always pay more than your minimum payment.

Ongoing Interest Rate
A rate of interest charged on an account for a period of time. This rate can be either a fixed or Variable Rate.

Over Limit
Over Limit refers to the amount of your balance that exceeds your Credit Limit. If this occurs, an Over Limit Fee will be assessed.

Over Limit Fee
An Over Limit Fee is a charge for exceeding the Credit Limit on the account.

Outstanding Balance
The total amount you owe the creditor.

Post Date
A Post Date is the date that the transaction was debited or credited to your account.

Pre-approved
A credit offer with a "Pre-approved" status means that a potential customer has passed the preliminary credit-information screening necessary to obtain credit with the creditor.

Personal Identification Number (PIN)
A Personal Identification Number (PIN) is a secret number that identifies you and allows you to perform transactions at ATMs.

Prime Lending Rate
Prime Lending Rate is a variable interest rate that is often used in calculating the Interest Rate on a credit account.

Repricing
Repricing is the act of changing a cardholder's APR.

Secured Card
A Secured Card is a credit card that a cardholder "secures" with a deposit to ensure payment of the Outstanding Balance if the cardholder defaults on payment. Secured credit cards are general-purpose credit cards targeted to customers with imperfect or limited credit histories who do not qualify for a traditional unsecured credit card loan.

Transaction date
The Transaction Date is the date a transaction was initiated.

Variable Interest Rate
A rate of interest charged on an account. This rate may change and is typically calculated by adding or subtracting an amount to a base standard interest rate, usually the Prime Lending Rate.

 
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