The Importance of Using Credit Cards Responsibly

We’ve all heard stories about college students who racked up thousands of dollars in credit card debt. These cautionary tales remind parents about the importance of protecting their children from making bad financial decisions. But, even more so, these stories serve as reminders that newly minted high school graduates can make “adult” decisions that will haunt them for years to come.

As millions of high school seniors prepare to graduate later this month, it’s a natural time for these young adults to look forward to greater independence, responsibility and the realities of adulthood. This is also a natural time for parents to sit down with their children to talk about the dangers of credit cards and how to use them responsibly. As part of this conversation, parents need to educate their children about how credit works and empower them to take an active role in their financial future by using credit responsibly.

Building Credit
There is great value in building a healthy history of credit by responsibly obtaining and managing credit accounts. A good credit history can mean paying less for apartment rent and insurance products, and receiving a lower interest rate on future purchases.

Parents and young adults should team up to develop a plan for using credit and building a strong credit history before children begin using personal credit cards. Talk to your local banker about opening a low-limit credit card in your child’s name, but put strict parameters around its use. Making one or two small purchases on the card each month and paying off the balance will help your child build a good credit history.

Don’t Fall for the Gimmicks
Credit card companies love to lure in young customers with t-shirts and other cheap merchandise, especially on college campuses. However, many of these cards carry annual fees and high-interest rates that can end up costing a great deal more than the “free” item is worth.

Encourage your children to resist the urge to fill out credit applications for freebies, even if they say they’ll never activate the credit card upon approval. There are many ways to build credit, and this isn’t one of them.

Consider Freezing Your Credit
A useful tool for young people and concerned parents alike is the credit freeze, a service available through credit bureau websites Experian.com, Transunion.com and Equifax.com. When your credit is frozen, no new creditors can look at your credit history without you lifting the freeze. This prevents new credit accounts from being opened without concerted effort. It also protects the credit card user from making hasty decisions about opening new credit accounts and limits potential losses from accounts opened fraudulently.

If you already have credit cards and want to prevent yourself from making impulsive purchases, take the old advice of freezing the cards in a block of ice. Let the card thaw out—without help, of course—and then decide if that purchase is still worth it. Remember, just because you have credit doesn’t mean you have money to repay the debt. Be sure to factor in your current financial situation before making a decision to buy on credit.

Commit to Actively Monitoring Your Credit Report
If you don’t want to go to the extreme of freezing your credit, you can actively monitor your credit account for inaccuracies and fraudulent activity. Unfortunately, there are many firms that want to charge you for this service that you can access each year for free at annualcreditreport.com, the only site authorized under federal law.

Each of the three credit bureaus—Experian, Transunion and Equifax—allows you to pull the report once per year so ideally, you could rotate pulling your credit report from one of the bureaus every four months. Annualcreditreport.com serves as a free gateway that allows you to request your credit report from each bureau—there is no need to visit the bureau websites to make these requests. By checking your credit report several times per year, you can ensure that your timely payments are being recorded accurately and no unauthorized activity has occurred.

This information is provided with the understanding that the association is not engaged in rendering specific legal, accounting, or other professional services. If specific expert assistance is required, the services of a competent, professional person should be sought.

Provided as a public service by the Pennsylvania Association of Community Bankers.

Improving Your Credit Score

Many Americans are feeling trapped in the current economic climate, facing foreclosure on their homes and living on credit cards to make it from month to month. Now, more than ever, it is important to maintain a high credit score and know what is in your personal credit report.
 

You first need to understand that, under federal law, you are entitled to a free credit report from each of the three national credit reporting companies each year.
To get started, select a date on the calendar. Let's start today. Go to your computer and log on to www.annualcreditreport.com. Be sure to order your report from this website. Other sites will charge you a fee. Using the date you select, you will be able to receive another free report each year by logging on and requesting your credit report. You may also call 877.322.8228 to request the form.
 

While you're checking on your credit report, you will also have an opportunity to check your credit score. This report will cost you a nominal fee, but it is important to know your score. Each year on your selected date, you will be able to order your free credit report and purchase a copy of your credit score.
 

What is a credit score?
The three national credit reporting bureaus, Experian, Equifax and TransUnion keep reports based on information they receive from companies who have extended credit to you. These reports include information such as your payment history, the length of your credit history, and the types of credit you have and the amounts you owe. From that information, they derive your credit score, which can range anywhere from 300 to a perfect 850.

Keep in mind that the higher your score, the better interest rates you'll receive. For example, consumers with a credit score above 700 generally receive lower interest rates and those with a credit score of 760 or higher will receive the lowest interest rates. The median credit score is 723. Consumers with the highest credit scores usually pose a lower risk as a potential borrower. If you're thinking about buying a new car or purchasing a new home, your 3-digit credit score will in large part determine your interest rate.
 

How is your credit score calculated?
According to one financial planning expert, your credit score is calculated using this formula:
- 10% is based on the types of credit in use, including the number of accounts and the mix of those accounts.
- 35% is based on your payment history. Do you pay your bills on time? Do you have any bankruptcies, judgment liens or foreclosures on your record?
- 30% is based on the amounts owed on available credit cards and installment loans.
- 15% is based on the length of your credit history.
- 10% is based on the number of new credit accounts opened recently.
 

How can you improve your credit score?
- Pay your bills on time. If you find it difficult to make time to sit down and pay your bills on a regular basis, consider setting up an automatic payment system through your bank, so you're never late. Of course, be sure you have enough money in your account to avoid overdrafts.
- Be sure you don?t have too much credit. Too many credit cards and installment accounts can negatively affect your credit score.
- Don't max out your credit cards and keep balances on your credit cards low. Experts suggest you keep your debt ratio on your credit cards under 50%. If you have a $5000 limit, don't carry a balance more than $2500.
- Don't open a lot of credit cards you don't need.
- Pay down those credit cards with the highest interest rates first.
- Carefully review your credit report and correct any errors immediately.
 

Credit is a good thing, but we all know what they say about too much of a good thing. Use credit responsibly and you'll find your lender will offer you the lowest interest rate when you go to purchase that new home or automobile.
 

This information is provided with the understanding that the association is not engaged in rendering specific legal, accounting, or other professional services. If specific expert assistance is required, the services of a competent, professional person should be sought.
 

Provided as a public service by the Pennsylvania Association of Community Bankers.
Contact: Pennsylvania Association of Community Bankers 717.231.7447

Online BillPay Will Keep You On Time
 

We've become a nation of time-savers. One of the simplest and most burgeoning time savers is online bill pay. By using online bill pay, we can save time, postage and ensure that our bill payments arrive on time. 
 

Some people are hesitant to use this service because they don't understand how it works, are distrustful of putting financial information on the web or prefer the traditional method of paying bills by writing a check so they can have a paper trail.
 

There are three ways to pay your bills online:
 

First, you may want to check with your community bank or other financial institution to determine whether they offer online bill pay to their customers. Many financial institutions offer online bill pay as a free service to their customers. You simply set up an online account on the bank's secure server, register your bills and schedule payment dates.
 

Secondly, you may want to use a third-party bill pay service to set up accounts for all of your monthly bills. This system works in the same manner. Just be sure the service you select has a safe encrypted Internet site. To ensure that you are not being directed to a fraudulent site, look for an image of a padlock in the lower portion of your computer screen. When you double-click the padlock, you'll be able to read the certification information on the pop-up screen. If there is no padlock image, you need to keep searching for another secure bill pay service.
 

As a third alternative, many companies accept online payments without charging you a fee. Additionally, once you set up an online bill pay account with one of your creditors, the company will send you an e-mail reminder that your bill payment is due and then send you a follow-up e-mail after you confirm your payment.
 

With online bill pay, you can schedule your payment due date and won't have to worry about finding time to sit down and write checks. Should you be on vacation or have an emergency situation, you don't have to worry about paying your bills. With your established due date, the bank online bill pay service will automatically deduct your stated amount from your account. Just be sure that you have enough money in your bank account each month to cover your payments.
 

If you are really serious about getting all of that clutter off your desk, you can also request that your creditor e-mail your statement to you. At the click of a button, you can access all of your account information whenever it is convenient for you. You can review payment history, transactions and recent activity so you will know if someone is using your account without authorization without waiting for a statement in the mail.

Once you see how easy an online bill pay service can be, you'll wonder why it took you so long to get started. Just remember to always use caution any time you transact business via the Internet. Be sure to use a reliable and trusted company with a secure server.
 

This information is provided with the understanding that the association is not engaged in rendering specific legal, accounting, or other professional services. If specific expert assistance is required, the services of a competent, professional person should be sought.
 

Provided as a public service by the Pennsylvania Association of Community Bankers.
Contact: Pennsylvania Association of Community Bankers (717) 231-7447

You're Entitled to a Free Credit Report!!
Thanks to a recent change in federal laws, Americans are now entitled to receive one free copy of their credit report every year from each of the nation's top three credit reporting agencies - Equifax, Experian and TransUnion.

And according to the Federal Trade Commission (FTC), the only website authorized to provide those free reports is www.annualcreditreport.com.

However, there are plenty of companies that charge consumers for access to their credit reports, so the FTC cautions you to type that web address carefully to avoid accidentally ending up on a site that charges a fee for a service you're entitled to receive for free.