Credit

What it's all about

Basics of Credit

Credit is the ability to obtain goods or services before payment based on trust that payment will be made in the future. You get credit cards which are plastic cards that are connected to an account and you use them to spend money that will need to be paid for at the end of the month or year. There are three types of credit. Installment, revolving and open credit. Installment credit is credit that you use to borrow money and make a promise to repay in equal amounts of a specified time. Revolving credit is credit that allows you to borrow a pre-established amount repeatedly for as long as your account is in good standing. You have to repay the borrowed amount in full or make a payment plan that is subject to interest or fees. Interest(APR) is a percentage rate for a whole year and this is the type of interest that you get for credit cards. It compounds making the money you own more than it was originally worth. Open credit is credit that requires all the money you borrow needs to be paid back IN FULL every month. Things that determine if you get credit are things like credit scores, credit worthiness, and this information is given by credit bureaus. they give was it called a credit report. A credit score is a number that is for showing how well you pay back your bills. How well you pay back your bills is called creditworthiness and this shows what a liability, if you are a good chance to take, or if you never pay your bills on time. All of this is on a credit report which shows all your history of credit cards. It shows when you did and didn't pay them on time. This report is done by a credit bureau whose job is to look up all of your files on paying bills and they give this information to banks or businesses that offer credit cards so they know what kind of risk they are taking so they don’t lose money. The places that give you the money are referred to as lenders.

Vocabulary Watch

Credit scores are extremely important. They are a key part in whether or not you get to have loans. This is a number given to you showing who well you pay back loans that you have previously taken out. It acts as a score and goes down when you are late, or haven't been able to pay in full, or if you didn't pay at all. Credit Bureaus get this information. It is their job to see how well you pay your bills and they give this information to people giving you money. They give what is called a credit report. This shows all of the information about your credit since you started and to where you are now.

Credit Cards: What you need to know

Credit cards can be laced with fees. If you don't pay back your bills then you may be charged with high interest rates and extra fees for being late on bills, or not paying them at all.

Smart Consumers: Don't fall into the Credit Card Trap

Don't spend more than you make. This is a huge mistake people make because they think the money is free. But you will have to pay it back and if you spend more on the credit card then you make, you will be charged with interest which will make the amount larger than it actually is, and you will also bring down your credit score. This leads to things like banks not wanting to lend you money for things like a card and house. Credit cards should be used for emergencies only!!!