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Money and Marriage
Issue 5. Before You Use Credit

$ Should You Use Credit? • $ How Much Credit Can You Afford? • $ Your Credit Report • $ Credit Scores • $ Requesting A Credit Report • $ Checklist on Getting Credit

To pay cash or to use credit is a choice you make each time you buy. Often the use of credit is a necessity. For example, when you reserve a hotel room, order by phone or online, or apply for a home loan, some form of credit will likely be required.

Never forget that credit costs money. Finance charges, including interest payments, annual, late payment and over-the-limit fees, can add up quickly. Failure to realize the TOTAL cost of credit can lead couples into debt overload overnight.

Remember, when you use credit you are spending future income. Since bills don't arrive for a month, it's tempting to overspend.

Couples need to discuss the use of credit and how they plan to use it to their advantage. Try this exercise. Work together and review the list below. Check the items for which you would use credit. Then, discuss the advantages and disadvantages of each.

If used wisely, credit can help you. When credit is not used responsibly, it can get you into big trouble. It is never too late to start to learn to be "credit wise."

Since no families are alike, there are no hard-and-fast rules to determine how much credit you can handle. But financial experts tell us there is a guide. Use no more than 20 percent of monthly take-home pay for consumer credit. Use the form below to determine if your debt load falls below 20 percent.

Once you begin to use credit, you will establish a credit history. Your credit activity will become part of your credit report. A credit report is a record of your bill paying activity. It tells if you paid debts and bills on time and according to signed agreements. Your report also includes a list of firms who have accessed your credit records for up to two years. These are called "inquires."

The company that maintains credit records is called a credit reporting agency. When you apply for credit, a credit grantor will look at your credit report to determine if you are a good credit risk. Your bill paying record is the first item a creditor reads to decide if you qualify for the loan.

If you've never used credit, you probably have no credit history. Take these steps to establish credit for the first time:

1. Maintain steady employment.

2. Open a checking and savings account and use them responsibly.

3. Apply for a gas or department store credit card and make prompt payments.

4. Ask a relative or friend, who already has a good credit history, to co-sign a small loan. Pay the loan back promptly.

Lenders use credit scores to determine the credit deal they can offer you. Your credit score is based on information in your credit report. You can order a credit score for a small fee from one of the three national credit reporting agencies, Equifax, Experian, and TransUnion.

To get the best deal, you need a credit score between 720 to 740 and higher.

Call one of the major credit reporting agencies and ask for a form to request a copy of your credit report. After June 1, 2005, a copy once a year is free. Until then, there will be a small fee.

Here is the information you will need to request a copy of your credit report.

You will also need to enclose a photocopy of a bill (credit or utility), driver’s license, or a document that links our names to the address where the report is to be mailed.

You will need to print or type and sign your name(s).

Although credit-granting policies vary, here are basic criteria creditors consider when you apply for a credit card or other type of loan.

Your chances for qualifying for a credit card or loan with favorable interest rates increase if you have:

• No major blemishes on your credit report such as bankruptcy, non-payment turned over to a collection agency, no repossessions, or a 90-day delinquency.
• Active accounts that show that the information you have provided is valid. Creditors prefer that you have at least two active open accounts – one that has been active for at least two years.
• No recent late payments (late payments sometimes, but not always, can disqualify an applicant).
• A verifiable address. Some issuers do not give cards to an applicant using a post office box or general address.
• Paid at least the minimum on all your accounts.
• A credit score of 740 or higher.

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