- What is the difference between a credit card and an ATM/Debit card?
A credit card is a revolving line of credit- a loan that must be repaid with interest.
An ATM or debit card is a payment card that is linked to your checking or savings account.
Charges that are made with an ATM card are debited immediately from the account. Charges
that are made using a credit card are added to a balance and must be repaid.
- What are the benefits and risks associated with using credit cards?
The table below details some of the benefits and risks:
The key is to be responsible when using your credit card and pay the balance off each
month- this way you'll reap all the benefits and avoid the risks!
|Emergency funds||May be charged interest|
|Convenient||Easier to make impulse purchases|
|Safer than cash when traveling||May be charged fees|
|Monthly statement can help document expenses||Easy to rack up a lot of debt|
|Wise use helps build good credit history||Unwise use can lead to bad credit history|
- What does it mean when I get a credit card offer in the mail that says I am "Pre-Approved"?
Unfortunately, it doesn't mean much. A credit card offer with "pre-approved" only means
that a potential customer has passed a preliminary credit-information screening. A credit
card company can deny a customer it invited with "pre-approved" junk mail if it doesn't
like the applicant's credit rating.
- What is the difference between a fixed interest rate and a variable interest rate?
Interest is calculated as a percentage rate of the loan/credit account principal. The
interest rate can be fixed, which means it does not change over the life of the loan, or
the rate can be variable, in which case it changes periodically. However, even a credit
card with a fixed interest rate may see increases in the rate if the card user exhibits
negative payment behavior (i.e. late payments, over the limit charges, etc.)
- How many credit cards should a person carry?
Generally, the fewer cards the better. Remember the more open
credit accounts you have (whether or not you carry balances)
the worse your credit score may be. But it can be
beneficial to carry one or two major credit cards.
(Avoid carrying store credit cards, such as department stores,
centers, etc.) Here's a great example: It's
better to have two cards with $5,000 credit limits than 10 cards
with $1,000 credit limits.
- Is it smart for me to transfer my balance from one credit card to another that has a lower interest rate?
This can be a strategy for taking control of your debts. But here are some things to
consider before you do it:
- Is the "low" rate on the new card just an introductory rate? In other words, what will the rate increase to after you transfer the balance?
- Does the new card have any additional fees (such as annual
fees) or higher fees than your current card?
- Does your current card have a balance transfer fee?
You can find the answers to these questions on the credit card contracts of both cards!
Once you find out, you'll be better able to decide if transferring the balance will really
save you money!
- How do I review my credit report?
Reviewing you credit report annually will help you catch errors and may even help minimize
the effects of fraud. If you've ever requested your credit report from the three credit
bureaus you know that each one looks totally different. Although they're each formatted
uniquely, they all contain the same information. Basically there are six key areas you'll
need to review for errors and inaccurate data:
How to Read a Credit Report can help you through the process of reviewing yours!
- What if I see some late payments and high balances on my credit report? What should I do?
First, determine whether or not these are accurate accounts. Basically, did you make the
late payments and do you have high balances? If not, you'll need to get these corrected
and erased from your credit report. See the following FAQ for more information.
If these accounts and late payments are the result of your actions, you may need to
re-evaluate your spending habits.
High balances may mean that you have too much debt to keep up with. First, get rid of
as many accounts as you can- cut up credit cards and call the creditor to cancel them.
Create a realistic spending plan for yourself, including the monthly due dates for each of
your bills. You may need to start putting more money towards your debts to get them paid
Figure out why you are sending the payments in late. Do you just forget to pay them on
time? Set up a direct pay account (monthly payments are deducted automatically from your
checking or savings account). Do you not have the money available at the time of the month
the payment is due? Call the lender and ask if they'll adjust your payment due date. Do
you simply struggle to make the payments at all? Getting organized and creating a spending
plan will really help you.
These are all first steps to getting back on track and improving your credit rating.
See the Links section for more helpful resources.
- What should I do if I find I'm a victim of identity theft?
If you see strange information or unfamiliar accounts on your credit report- it might not
be identity theft. Sometimes credit reports have one or two errors that simply need to be
corrected- this is not uncommon. However, several unfamiliar accounts are more suspicious.
Either way, you'll need to contact the credit bureau that supplied you with your report.
The bureaus allow you to dispute incorrect data that appear on your report, either by phone,
mail, or even the Internet. If you think it may be a case of identity theft, you'll want to
inform the bureau of this. Also be sure to request your credit report from all three credit
bureaus, because if the accounts appear on one report, they're probably on all three!
If the thief simply has your account numbers, you may be able to fix the problem by
closing your credit accounts and opening new ones. If the thief has your personal
identifiers (i.e. date of birth, address, Social Security number), the problem is much
harder to fix. Even after you clear the incorrect data from your report, you'll want to
closely monitor your accounts so you can spot new fraudulent accounts as they appear in
Use the links below to visit the three major credit bureaus' Web sites for more
information on ordering reports or disputing incorrect data.
See the Links section of this video to find helpful Websites that can assist you
through the process of recovering from identity theft.
- What if I find that my debt-to-income ratio is really high?
A high debt-to-income ration means that you're a riskier customer for a creditor. So
before you apply for a loan, work on getting your debts paid down. This includes consumer
loans, credit cards and even student loans. If you do have to apply for a loan before you
pay down your debts, you may still be approved for the loan, but it will most likely have
a higher interest rate.
- How does someone re-establish good credit after filing bankruptcy?
There is life after bankruptcy! To achieve good credit, you'll need to start fresh and
borrow a new loan or open a new credit account. The most important thing is to not get
yourself back into the situation that lead to bankruptcy! So start small. Take out a
small loan or open a credit card with a low limit. Make all your payments on time. Never
charge over the limit. Do not borrow more than you can afford to repay. Simply use your
There are two things to keep in mind as you re-establish good credit: first, a creditor
might offer you a
to help you rebuild your credit rating. And second, when
you are approved for a loan or card, it will have a much higher interest rate.
In time you'll be able to apply for additional loans. And as lenders see your credit
rating increase, they'll be more likely to want to lend to you and offer you lower rates.
See the Links section of this video to find helpful Websites with information about
re-establishing good credit.