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Using Credit

Establishing Credit
The early years in your credit life are crucial for building a strong credit foundation. Establishing good credit gives you buying power when you need it.

 
Why do I need credit?
Building a good credit foundation is essential to purchasing cars, homes and many of the things you want. Without it, you're considered a credit risk. Also, you often need credit in the form of a credit card to reserve and rent such things as automobiles and hotel rooms. The convenience of shopping online or by phone is another reason to obtain a credit card.

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How do I establish credit?
If you don't currently have a credit card, the first step is to open a savings and chequing account at your local bank or credit union. Such accounts are often taken into consideration by lending institutions as evidence that you have money and know how to manage it.

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Will credit cards help build my credit reputation?
Yes, as long as they are used properly. This can be accomplished by establishing credit at a department store or by applying for a major credit card. Even if you have enough money to pay for the entire purchase, you can begin to build your credit reputation by charging the item. In most cases you will not incur finance charges if you pay the entire balance by the due date on your statement.

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How do I maintain good credit?
Having a realistic budget, keeping a moderate credit limit and paying balances every month are the keys to good credit. When you're starting out, credit companies will not give you a large credit limit, but you still have to be careful. Don't extend your credit too far if you can't make the payments.

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How much debt should I have?
Many credit counselors advise that monthly installment debt payments, such as car or school loans and credit card payments (not including a home mortgage), should not total more than 20 percent of monthly income. For example, if your monthly take-home pay is $1,000, you should be devoting no more than $200 a month to credit payments.

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