Credit basics for first-time users
Important facts on becoming a smart credit consumer
Why is learning about
credit important?
Chances are good that most of us will use credit
throughout our lives. That’s why it’s so important
to learn as much about credit as you can now.
What can credit do for you? Everything from
providing a financial cushion in case of emergency
to improving your chances of buying a house.
Developing smart spending habits now will help
you avoid the mistakes that can lead to long-term
financial problems.
How does a credit card work?
When you use a credit card, you are essentially
borrowing money to buy something now that you
will pay for later. At the end of the month, you
receive a statement that shows your purchases, the
total amount you owe and the minimum amount
you must pay. If you pay the entire amount due, you
won’t pay any interest. However, if you only make
the minimum payment, an interest charge will be
applied to the remaining balance on your account.
Reasons to use credit
Credit can be a very useful tool in managing your
everyday finances, providing a flexible payment
option that can make your financial life easier.
Responsible use of credit cards is also an important
step toward establishing a good credit history,
which will give you financial advantages now and in
the future. Good credit history leads to a positive
credit score, which is typically used by banks and
other businesses to determine if you’re someone
who’s responsible with money. Here are the three
main areas where credit cards offer advantages:
More Options
•A  credit card can help you manage your money.
You can track and adjust your monthly spending
with a simple review of your monthly statement,
which may also help with your monthly budget.
• Credit cards give you more ways to buy things.
They are accepted worldwide, even where
cash and checks may not be accepted, (e.g.
hotels, car rentals, mail or telephone orders
or online shopping).
• A credit card can also afford you a little peace
of mind since you can use it as payment in
emergencies or to cover larger, unforeseen
expenses, such as car repairs, medical
emergencies, new appliances, etc.
Security
• Carrying a credit card offers more security than
carrying cash and it gives you zero liability
protection against unauthorized purchases.*
Financial Freedom Unused Credit Cards: The credit rating formula
•M  any cards have grace periods that last as long looks at the difference between the amount
as 25 days, essentially giving you an interest-free of credit a person has and the amount being
loan for nearly a month before you have to pay used. Closing one or more credit card accounts
off your balance. The best practice is to pay reduces your total available credit. This, in turn,
your balance in full each month. lowers the percentage of available credit, which
• You can use a credit card to cover short-term ultimately lowers your credit score. The formula
costs until your next payday so you avoid also factors in the length of time your credit ac-
overdraft fees on your checking or debit counts have been open. So before you close an
card account. account, talk to your bank or get advice from an
experienced financial advisor.
What’s a credit score and Seven ways to use
why is it important? Number of Credit Inquiries: When you apply credit responsibly
A credit score—sometimes referred to as your for credit, you authorize lenders to ask for a and avoid getting
FICO score—is a widely used calculation of copy of your credit report from a credit bureau. into debt
various factors concerning your credit history and When you check your credit report after such an
1. Be sure to check your
current credit accounts. Financial institutions inquiry, you may notice that inquiries are listed. monthly statement to see
and other companies use your credit score to That’s because inquiries from lenders directly if all charges and payments
determine whether you’re someone who is affect your credit score since lenders assume have been reported
responsible with your money (which includes that multiple inquiries are a sign that you’re accurately
meeting the terms of your credit card agreement). looking for loans, which may make you a poor
2. Only purchase items you
Credit scores range from about 350 to 800. A low credit risk. You can help your credit rating by can afford to pay back in
score indicates poor credit history and makes keeping credit inquiries to a minimum. a reasonable amount of
someone a high risk for credit. A high score, which time; if you know you
indicates a good credit history, can give you Stay on top of your credit score can’t afford something,
don’t buy it
many advantages, including better interest rates It’s a good idea to order and review your credit
and higher credit limits on things like credit cards, report every year. Everyone is allowed to get one 3. Do not exceed your credit
mortgages and other types of loans such as a free credit report every year. For a free copy of card limit
new car loan. It also lets landlords know that they your credit report, you can go to
can trust you to pay your rent on time each month. www.annualcreditreport.com. 4. Pay more than the
minimum due if you can.
Otherwise contact these major credit bureaus:
You’ll reduce the time it
What factors determine takes to repay your credit
your credit score? Equifax—www.equifax.com card debt and save money
Factors affecting a positive or negative credit score: Experian—www.experian.com by paying less interest
TransUnion—www.transunion.com
5. Keep unpaid balances
Payment History: Overdue bills or late payments
low—borrow only what
will lower your credit rating. Check your report for any inaccuracies and if you you can repay in a given
need to dispute errors, contact the reporting time period
Amount of Debt: In general, your non-mortgage agency to explain the disputed items. You can
credit payments each month should not exceed request an investigation, send copies of 6. Do NOT miss a payment or
pay late. If you do, you’ll
more than 15 percent of your after tax income. supporting documents and tell the creditor
be charged fees and
that you are disputing an item. additional interest
Responsibility and Stability: Staying at one
address and at one job for extended periods of 7. Know the interest rate on
time (usually at least two years) are viewed as your card and read the
terms and conditions of
positive signs.
your account to familiarize
yourself with all possible
fees, such as those applied
for cash advances

MasterCard believes that informed consumers are better equipped to

enjoy the financial freedom a credit card offers. To learn more about
credit cards and financial responsibility, MasterCard encourages you to
visit the Learning Center at www.mastercard.com/education

*Conditions and exceptions apply. For further details, see www.mastercard.com/zeroliability

©2009 MasterCard