Understanding Your Credit Report

Using Credit Cards Responsibly

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A credit card makes it easy to buy things now and pay for them later. If you’re not careful, you can lose track of how much you’ve spent by the time the bill arrives. And if you don’t pay your entire bill, you’ll probably have to pay finance charges on the unpaid balance.

If you continue to charge while you have an outstanding balance, your debt will grow. Before long, your minimum payment will cover only the interest. Not only could it take years to catch up, but you will have paid much more for the items than they originally cost.

If you start having trouble repaying your debt, you could harm your credit record.

If you’ve already established your credit history buIt are having trouble making your monthly payments — or if you’re being contacted by debt collectors — you might feel overwhelmed. But there are things you can do to manage your debt.

1. Develop a budget:

   Make a list of how much money you bring in and how much money you spend on a monthly basis. Start by listing your income from all sources.

   Then, list your “fixed” expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums.

   Next, list the expenses that change — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, can help you track your spending patterns, identify necessary expenses, and figure out priorities.

   The goal is to make sure you can make ends meet on the basics like housing, food, health care, insurance, and education.

2. Contact Your Creditors: Contact your creditors immediately if you’re having trouble making your payments. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a level you can manage.

   Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

3. Dealing with debt Collectors:

   The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls

   Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must stop contacting you if you ask them to in writing. For more information, visit ftc.gov/credit and see Fair Debt Collection.

4. Credit Counseling:

   If you’re not disciplined enough to create a workable budget and stick to it, if you can’t work out a repayment plan with your creditors, or if you can’t keep track of mounting bills, consider contacting a credit counseling organization.

   Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops.

   They should send you free information about the services they provide without requiring you to provide any details about your situation. If a firm doesn’t do that, consider it a warning sign and go elsewhere for help.

   For more information, visit ftc.gov/credit and see Fiscal Fitness: Choosing a Credit Counselor.

5. Consolidate Your debt:

   You may be able to lower your debt payments by consolidating your debt through a second mortgage or a home equity line of credit. But remember that these loans require you to use your home as collateral. If you can’t make the payments — or if your payments are late — you could lose your home.

   For more information, visit ftc.gov/credit and see Knee Deep in Debt.

If you are having trouble managing your debt or setting up your first account, you might be tempted by offers that guarantee to provide you with a loan, wipe out negative information on your credit report, or consolidate your debts.

Before you do business with any company, check it out with your local consumer protection agency or the Better Business Bureau where the company is located.

Some common credit scams involve offers for debt relief, guarantees that you’ll get credit if you pay a fee first, or offers to remove accurate negative information from your credit report. Take care.

 

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