Ketan Trivedi

The Basics of Credit

Credit is essentially borrowing money and promising to return it in the future. It can be used to pay off student loans, purchase a car, and also to settle into a new home. However, it's not simple to receive personal loans and credit cards. A lender will check your creditworthiness; through the help of the credit bureau, a government organization that has information on every adult in the country, they'll check a credit report to view your credit score. A credit score is a summary of your financial career; the higher your credit is, the easier it is to get loans. You'll have a good score by paying your bills on time, making sure you're not in debt, and spending money wisely. Responsibility matters when it comes to credit, and interest (APR) is a major part of that. If you have a high credit score, you'll have to pay low interest rates; if you have a low score, you'll have high interest rates. It is very important to stay on top of your game and use your money wisely.

Vocabulary Watch

Credit Cards: What YOU Need to Know

Consumers use credit cards to borrow money from banks to use for purchasing goods and services. Each card has a certain credit limit, which cannot be exceeded or else there will be an over-the-limit fee. Another penalty fee may be charged when someone doesn't return borrowed money on time; in that case they'll get charged for interest, money for not paying on time. Interest rates vary and are based on the type of card and the amount used from it. Some credit cards also have an annual fee. An annual fee is a yearly payment made in order to keep using the card. To continue, there are benefits from credit cards other than just being able to borrow money. For customers that are loyal and do a good job of staying with their payments, credit card companies reward them with free money. However, credit cards can be costly. It can be very easy to fall behind on payments and getting into debt. Getting into debt will lower your credit score and make it difficult to receive certain services. It's very important to only spend the money on credit cards that you know you can pay back.

Smart Consumers: Don't Fall Into the Credit Card Trap

- Keep up with all of your payments

-Use the card for needs, not wants

-Know the details of the specific card you have

-Don't make minimum payments

-Stay within budget