Credit

Like most things, credit has both advantages and disadvantages. By using it wisely, and putting the contents of this section into action, you can capitalize on the advantages and reduce the disadvantages.

Disclaimer: The material provided below in this section should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management.

• Please visit the Practical Money Skills site to learn more about Credit Cards.

Advantages and disadvantages

Advantages

• Ability to buy needed items now.
• Don't have to carry cash.
• Creates a record of purchases.
• Can be more convenient than writing checks.
• Ability to consolidate bills into one payment.
• Generally more secure than cash or checks.
• Many offer frequent flier miles, cash-back incentives, or other benefits or extras.

Disadvantages

• Potential higher cost of items (interest and finance charges, other fees) if paid back over time.
• Easy to spend beyond your means, resulting in financial difficulties.
• Not paying bill on time can negatively affect your credit history, making it more difficult to get a car loan, a mortgage, or even acquire car insurance.

Choose a card

• A credit card is a "buy-now, pay-later" tool. A credit card is an unsecured loan that a financial institution provides to you as a payment convenience. Using a credit card means that you intend to repay the amount, plus interest, if you do not repay the balance in full each month.
• A debit card is a "buy-now, pay-now" tool. A debit card is linked to your checking and/or savings accounts — in banking terms, deposit accounts. When you use a debit card, money is subtracted from your deposit account, generally a checking account.

What to look for

• The Interest rate - When paying your credit card balance in full each month, the interest rate may matter less than the size of the annual fee and the rebates or other benefits you can earn when you use the card.
• Terms/Conditions - Understand what the fees are for cash advances, late payments, and over the limit fees.
• A co-branded card - These cards often provide such extras as rebates, cash rewards, frequent flier miles, and/or free or discounted merchandise. Be aware that the extras may not last the lifetime of the card and may come with a card at a higher interest rate.
• A rebate card - Read these offers thoroughly to find out how much you have to charge to earn rebates. If you don't think you will charge enough within the specified time to collect rewards, the higher interest rate and annual fee might not be worth it. Also, check whether the company charges interest from the date of the transaction. If so, those high rates may cause you to pay interest on this type of card, even if you pay your balance in full every month.

How to build good credit

• Know your limit - Obey your credit limit. Exceeding your limit may be deemed a violation of your account agreement and may result in additional fees or penalties, an increased interest rate, or the freezing or cancellation of your account.
• Pay on time - Whether you choose to make the minimum payment or to pay the total outstanding balance, your payment must reach the financial institution or business by the payment due date. Otherwise, you could incur late fees, and you may damage your credit history.
• Stay in good graces - Many payment cards offer a grace period within which you can pay off the total balance of your account and avoid any finance charges. In a way, it's like an interest-free loan for a limited period of time, because purchases paid off within the grace period do not accrue interest. In fact, many consumers pay their balance in full during this period. Beware, however, of payment cards that accrue interest from the date of the transaction.
• Get to know your APR - Because different institutions often use different systems for computing finance charges, your APR (annual percentage rate) is a valuable number to know. If you plan to carry a balance on your account often, it may make sense to shop around for a lower APR, even if you must pay a higher annual cardholder fee.
• Keep in touch - If you change your name, address, or job, notify your lending institution immediately. Your payment could turn into a late payment in the time it takes for a statement to be forwarded to your new address by the postal service. Also, contact your lender if you cannot make a payment on your account for any reason. Special payment options or agreements may potentially be arranged that will satisfy both you and your lender, while keeping your credit history intact.

Your credit rights

• Handling merchant disputes - If you are dissatisfied with an item or a service purchased with your card, the first step is to resolve the issue with the merchant. If you can't resolve the issue, contact your card issuer and you may not have to pay the amount due on the charges. Check your cardholder agreement and billing statement for complete details, limitations and restrictions.
• Handling billing errors - If your billing statement is incorrect, or if you want more information about a transaction, write to the address shown on your statement. Typically, you will need to include your name, account number, transaction number, amount, date of purchase, and an explanation of why you believe the charge is an error. Your card issuer may require additional information to process your request. Generally, issuers require cardholders to dispute any charge within 60 days after the date of the statement on which the error appeared. Check your cardholder agreement and billing statement for more information.
• Handling fraud - Ensure that you’re 100% protected from unauthorized purchases made with your card. Visa’s 100 percent Zero Liability Policy* protects consumer Visa cardholders who promptly notify his or her issuing bank of an unauthorized purchase. Visit Visa´s Zero Liability Policy* for more information.
• Put it in writing - Phone calls to your card issuer´s customer service center may answer your questions but you should also follow up with a letter confirming the details of your conversation. Keep copies of all statements, receipts, and correspondence.
• Guard your card - Keep your information secure. With the exception of online, telephone, and mail-order transactions, you should never be required to supply your address, phone number, or other personal information in order to use your credit card. If paying by check, never allow someone to write your account number on the check.
  
  You should be very cautious about giving your account number to someone calling you on the phone, even if the caller says it will be used to award a valuable prize or gift. If your account has a personal identification number (PIN) for use at ATM locations, it is not recommended that you write it down. Try to memorize it instead. And avoid picking an obvious PIN, like your address, phone number, or date of birth—people can figure that out far too easily.
• Help with your credit rights - Your rights as a credit user have been established through the Equal Credit Opportunity Act, Truth-In-Lending Act, and Fair Credit Billing Act.
  Credit Opportunity Act, Truth-In-Lending Act, and Fair Credit Billing Act.
  
  For more detailed information on your credit rights, contact the Federal Trade Commission at (202) 326-2222 or the National Consumers League at (202) 835-3323.

Credit Reports
Consumers have the right to request a free credit report from each of the three major credit agencies every year. In compliance with the Fair Credit Reporting Act (FCRA), Equifax, Experian and TransUnion have set up a central website and a toll-free telephone number through which you can order your free annual report. To order, visit annualcreditreport.com or call 1-877-322-8228.