Advice@American Express/August 19, 1999

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Consumer credit -- How to get it, how to keep it

If you're like most people, the day you receive a positive reply to your application for credit is a major milestone. Whether it's your first credit card or financing for a major purchase, getting credit approval constitutes a rite of passage. Now you have an essential financial tool -- consumer credit -- at your command.

But, like so many things worth having, consumer credit needs to be protected and used wisely. Here are some ways to avoid problems:

Before you qualify

You should begin by learning about United States laws that define your credit rights. Jodie Bernstein, director of the Federal Trade Commission's Bureau of Consumer Protection, says, "The FTC enforces credit laws that protect your right to obtain, use and maintain credit. These laws do not guarantee that everyone will receive credit. Instead, the credit laws protect your rights by requiring businesses to give all consumers a fair and equal opportunity to receive credit and to resolve disputes over credit errors. Call the FTC toll-free at 1-877-FTC-HELP or visit its website for more information."

Another good preparation is to understand the different kinds of credit accounts and the special language of consumer lending institutions.

Your credit history

The best way to qualify for credit is to establish a credit record in your own name. If you're 18 and have a regular income, and have already financed a car loan or other purchase, you already have one. You should see what prospective lenders will learn about you by ordering a report from one or all of the three major credit bureaus:

Equifax
(800) 685-1111

Experian (formerly TRW)
(800) 682-7654

Trans Union
(800) 888-4213

If your application for credit is denied, find out why. You may not meet the issuer's specific criteria at this time. Or there may be an error on your credit report. If so, you can have it investigated by the credit bureau and corrected at no charge.

But, what if you have never established credit before? You might try one of several approaches:

Apply for a card at a local store that reports to a credit bureau.
Consider a secured credit card, using a bank account or other asset account as security.
Ask someone with an established credit history to co-sign a credit application for you.

Then pay your bills on time.

Money management techniques that work

Paying your bills on time sounds easy, but it takes discipline. It will only happen if you set spending and saving goals, calculate your expenses, and set up a budget you can live with. Then, you should track your expenditures on a continuing basis, and decide if you are meeting the goals you set for yourself.

Your budget should be simple and easy to live with. Used well, it will provide a realistic view of your finances and reveal opportunities to cut expenses.

Tools that can help you keep track of your spending run the gamut from money management or financial software such as Quicken, to a shoebox with envelopes for various kinds of bills. Try out different methods to find the one that works for you.

Facing up to credit problems

If you find that you may be using credit as a way to live beyond your means, it's time to change your behavior and take steps to correct the situation.

Don't skip a payment or ignore communications from your creditors. Instead, call them and set up a mutually agreeable repayment plan.

Work with a reliable non-profit credit counseling agency to design a plan for paying your bills. Then commit to implementing it.

If you have been delinquent because of illness, unemployment, family problems or some other situation, you are entitled to write a short explanation that can be added to your credit report. It will demonstrate to potential creditors that you are aware of past problems and are working to correct them.

August 19, 1999

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