Family and Consumer News: National financial literacy month
April is National Financial Literacy Month, so I would like to share with you some information on credit from Consumer Action, a non-profit education and advocacy organization.
Budgeting, living within your income and saving money are vital steps to wise money management. But sometimes you face an expense that is difficult (if not impossible) to pay for out-of-pocket. Many people who don’t have the cash at such times turn to credit.
Credit is the opportunity to borrow money to use now and then repay over time at an agreed upon cost. Credit can be a convenience and an important financial tool if it’s used wisely. By understanding how credit works, what it costs, and how to avoid accumulating too much debt, you can use credit to your advantage.
Types of Credit
Installment credit, such as car loans or home mortgages, requires you to make a fixed number of monthly payments until the original loan amount is repaid in full.
Revolving credit, also known as short-term or open-ended credit, allows you to borrow money, up to an assigned credit limit, over and over again. The amount of your available credit shrinks as you use it and grows again as you repay the borrowed money. For example, if you had a $1,000 credit limit and you used $200, your available credit would be $800. If you paid off the $200 when your bill arrived, you would have access to the full $1,000 again.
With revolving credit, you have the option to pay the entire outstanding balance when the bill is due or to pay a part of the balance and carry over the remainder to the following month.
You will pay interest on the debt you carry over. Interest is the lender’s fee for allowing you to use its money.
Examples of revolving credit include credit cards and lines of credit, such as overdraft protection for your checking account and a home equity line of credit (HELOC). Banks, credit unions, credit card companies, retailers, mortgage companies and others offer revolving credit accounts.
Your Credit Report
Your credit report is a detailed record of how you’ve paid your bills and managed your credit over the years. Lenders use your credit history to help them decide whether to grant you credit and, if so, what interest rate you will pay.
The better your credit history, the more likely it will be that your credit application will be approved and you will qualify for the lowest (prime) interest rates.
Check your credit report regularly to catch any errors that could damage your record.
The Equal Credit Opportunity Act does not guarantee you will receive credit, but it prohibits a creditor from denying your request for credit based on factors such as race, gender, marital status, national origin or religion. If you are denied credit, you have a legal right to know why.
You also have the right to up-front disclosure of all credit terms (“truth in lending”), including fees, interest rates, and other details about how much you will pay for the credit and how those charges are calculated. This will help you compare credit offers and make the best choice.
You are entitled to one free credit report every 12 months, upon your request, from each of the three national credit reporting companies: Equifax, Experian, and TransUnion. You can obtain your reports for free online (www.annualcreditreport.com) or by calling 877-322-8228.
You’re also entitled to a free report if a company denies your application for credit and you request your report within 60 days. The lender must provide you with the name and contact information for the credit reporting company that provided the negative credit information.
For further information, you may contact Adrianne Vidrine at the LSU AgCenter at (337) 788-8821 or you can also visit our website at http://www.lsuagcenter.com.