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Steps
to Establishing or Re-establishing Your Credit
Having
credit is an asset and can help provide you with a great deal of financial
freedom. There are several steps to begin:
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Open a checking and/or savings account.
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Have a record of stable employment
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Live
in your current residence for at least six months.
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Open
a charge account with a local department store or apply for a gasoline
credit card.
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Consider
taking out a small loan from your bank or credit union.
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Open
a secured credit card.
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A secured credit card is one that you secure with your own funds. To obtain
this type of card, you deposit a specified amount of money in a financial
institution. The bank will then issue you a credit card. The amount you
deposit is your credit limit.
Choosing the Right Credit Card
When choosing a credit card you must first consider how it will be used,
and how much debt you can afford. Ask yourself the following questions:
1. Will you use it for regular purchases, or for emergencies
only?
2. How much can you pay each month when you get the bill?
3. Are you going to carry a balance and for how long?
There
are four areas you then need to compare when selecting the card: Annual
Fees, the Annual Percentage Rate (APR), Grace Period, and Late Fees.
Annual Fees
Some credit cards are issued with an annual fee, and some do not. You
will want to look for a card that does not charge any annual fees or the
fees are minimal. Determine all fees being charged by each of the cards
you are considering.
Annual Percentage Rate (APR)
The APR can vary dramatically from card to card. Typically, the rate you
are offered will be related to your credit history. The better your history,
the lower rate you will be offered. Be sure to read the fine print. Many
cards are offered with a very low APR, but this APR may be for a limited
start-up period. Further, the APR may jump to a very high rate the moment
a payment is received even one day late. An exorbitant late fee may also
apply.
Grace Period
You also need to determine what grace period the card will offer you.
Some cards have no grace period and will begin charging finance charges
the day your purchase is made. Avoid these types of cards. Cards that
have a longer grace period will enable you to save the money needed to
pay your charges in full each month. In this case, the APR is not important,
unless you take cash advances, which are treated differently.
Late Fees
One last thing you should look at is how much of a fee the credit card
will charge for late payments or if the account falls over the limit.
These types of fees can be costly and make it more difficult to pay the
balance off. These fees can vary dramatically from card to card. Of course,
if you make all your payments on time, this becomes unimportant.
Steps to Establishing or Re-establishing Your Credit
Credit needs to be used wisely. You need to ask yourself: “How
much credit can I afford?” The rule of thumb to follow
is no more than 20% of your net income for consumer debt; excluding
mortgage or rent. The key to establishing a good credit rating is to use
your credit in a responsible manner and make on-time monthly payments.
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American
Debt Solutions, Inc., an NFCC Non-Profit Credit Counseling Agency is a
501(c)(3) nonprofit organization providing consumers with quality debt
consolidation programs and inexpensive debt management services.
Call
Toll FREE 1.800.246.4019 or
click here for a
Free Analysis!
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