Building Good Credit
The best way to maintain your credit standing is to repay all debts on time, however, there may be complications. To protect your credit rating, you should learn how to correct mistakes and resolve misunderstandings.
When there’s a problem, first try to deal directly with the creditor. Credit laws can help you settle your complaints without a hassle.
On your first attempt to get credit, you may face a common frustration: sometimes it seems you have to already have credit to get credit. Some creditors will look only at your salary and job and the other financial information that you put on the application. But most also want to know about your track record in handling credit, namely, how reliably you’ve repaid past debts. They turn to the records kept by credit bureaus or credit-reporting agencies, whose business is to collect, store, and report information about borrowers that is routinely supplied by many lenders. These records include the amount of credit you have received and how faithfully you’ve repaid.
Here are several ways you can begin to build a good credit history:
Open a checking account or a savings account or both. These do not begin your credit file but may be checked as evidence that you have money and know how to manage it.
Apply for a department store or gasoline credit card. Repaying credit card bills on time is a plus in credit histories.
Ask whether you may deposit funds with a financial institution to serve as collateral for a credit card; some institutions will issue a credit card with a credit limit usually no greater than the amount on deposit.
If you don’t qualify on the basis of your own credit standing, you may consider asking someone to cosign your application.
If you’re turned down, find out why and try to resolve any misunderstandings.
What Laws Apply?
The following laws can help you start your credit history and keep your record accurate:
The Equal Credit Opportunity Act (ECOA) ensures that all consumers are given an equal chance to obtain credit. This doesn’t mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.
The Fair Credit Reporting Act sets up a procedure for correcting mistakes on your credit record.
Credit Histories for Women
Under the Equal Credit Opportunity Act, reports to credit bureaus must be made in the names of both husband and wife if both use an account or are responsible for repaying the debt. Some women who are divorced or widowed may not have separate credit histories because their credit accounts were listed only in their husbands’ names. Divorced and widowed women can still benefit from such a record.
Under the Equal Credit Opportunity Act, creditors must consider the credit history of accounts women have held jointly with their husbands. Creditors must also look at the record of any account held only in the husband’s name if a woman can show that it also reflects her own creditworthiness. If the record is unfavorable-for example, if an ex-husband is a bad credit risk-she can try to show that the record does not reflect her own creditworthiness. Remember that a woman may also open her own account to ensure starting her own credit history.
If you are considering borrowing for a home you’ll want to make sure you are working with a reputable lender. Or if you are a homeowner who needs money to pay bills or to make some home repairs, you may think a home equity loan is the answer. But not all loans and lenders are the same. You should shop around. The cost of doing business with high-cost lenders can be excessive and, sometimes, downright abusive. For example, certain lenders, often called “predatory lenders”, target homeowners who have low incomes or credit problems or who are elderly by deceiving them about loan terms or giving them loans they cannot afford to repay.
Borrowing from an unscrupulous lender, especially one who offers you a high-cost loan using your home as security, is risky business. You could lose your home and your money. Before you sign on the line, think about your options, do your homework, and think twice before you sign. You have rights under the law.