All You Need to Know About Credit

By Nicole Imrich

The Basics of Credit

"Buy Now, Pay Later"

What does that remind you of? Yes, credit is correct. For those of you who may not know, credit is the wonderful ability to borrow money in return for a promise of future payment. There are many forms of credit, like student loans, credit cards, house loans, car loans, college loans, and many more. Unfortunately, credit is not free. You must pay an interest, or APR (annual percentage rate). Not only so, but you also must demonstrate your "creditworthiness" in order to receive credit. Creditworthiness is your reliability to pay back a loan. Lenders, or people who grant you the loan, judge your creditworthiness based on three factors: character, capacity, and capital. Character is your sense of financial responsibility, capacity is your financial ability to pay back a loan, and capital is the value of what you own. An organization known as the Credit Bureau has a record of every adult. So, if you are questioning your creditworthiness and wonder if you are financially capable to pay off a loan, ask yourself these questions: Have you ever missed a rent payment? Have you been sued? Have you filed for bankruptcy? Have you had a bounced check? If you answered no to all of these questions, you are probably in good shape to receive credit. If you think you have the ability and willingness to pay your bills on time, you may try to ask for credit. The Credit Bureau will also give you a Credit Score, which is a number that reflects your creditworthiness and will officially determine where you stand. The score range is from 300 to 850, but the higher your score is the better your chance is of getting credit. The Credit Bureau will the provide you with a Credit Report which is basically a report of all your credit history, and it includes your credit information and your credits score. You should make sure that your credit report is the best it can be because many lenders request to see a copy of it when you are applying for credit or asking for an important loan.


Credit Cards: What You Need to Know

Credit cards give you the ability to spend the money you don't have. A credit card may be a small plastic card, but it holds more than you can imagine. A credit card allows you to buy goods and services in return for a promise of future payment. You can get a credit card simply by browsing online and applying for one you think benefits you. Establishing a credit card now will allow you to use credit more easily in the future. It is easier to begin when you are 18, but make sure to start small. However, there are a few costs that come with opening up a credit card. Some credit cards require an annual fee, which is a required amount of money that you must pay each year just for having the card. Also, you may be required to pay an interest, or APR (annual percentage rate), anywhere from 0% to 29%, depending on what card you choose. Paying your bills on time is important, because then your APR will stay low. Yes, credit cards allow you to go off your budget and spend the money you don't have, but don't get too excited, because credit cards do have a maximum limit. It is important to stay within that limit because not only will your card be declined, you may even be charged with an over the limit fee. These penalty fees can increase your APR, and that is not something you want.

Credit cards allow consumers to purchase more goods, and purchased goods means more people to make goods, and more people to make goods requires more jobs. People with jobs are able to spend more money and use credit to purchase more goods. This cycle repeats itself and allows our economy to flow, so in a way your spending is helping the economy function. Credit cards are there for you to take advantage of, but then again, not too much advantage.

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

Credit is very risky. Try to consider a loan as opposed to using a credit card because the interest rate may be lower. If you choose the credit route, choose wisely. When applying for a credit card, make sure to research all of your options. Look for the least expensive one and one that offers better benefits than others.

Avoid having too many cards. Instead, pay in cash. Too many cards can lead to debt, identity theft, or even bankruptcy. If you already have a lot of cards, make sure you keep up with your payments to avoid debt and late fees. Pay credit card balance in full and avoid the minimum payment trap. Seek credit counseling if you feel like you can't manage.