Credit, Learn all about it!

by: Angelica Michalak

The Basics of Credit:

Credit is the ability to borrow money, in return for a promise of future payment. The forms of credit include personal loans, such as house, car and school loans. Also, credit cards are a form of credit. Credit is not free, it is necessary to pay interest (APR or annual rate %). In order to get credit, you must demonstrate your creditworthiness. They must be able to tell if you are reliable to pay back your loan. Lenders just this with character, capacity, and capital. All this information comes from a loan application which has assets (capital), income, and liabilities (debts). Also, it comes from the credit bureau which collects information on consumer's credit and sells it. They have record of every adult and assigns credit rating (score). A score between 300- 850, and the higher the score, the better. Credit report (history) is your credit information and credit score. It is provided by the credit bureau's and requested by lenders.

Important Credit Vocabulary Terms:

Creditworthiness- trustworthiness with money as based on a person's credit history; a general qualification for borrowing.

Collateral- Something pledged as security for repayment of a loan

Credit Limit- The maximum amount of credit that a bank or other lender will extend to a customer, or the maximum that a credit card company will allow a cardholder to borrow on a single card

The Basics of Credit Cards:

A credit card is a plastic card issued by a bank, business, etc., for the purchase of goods or services on credit. You can use credit cards anywhere a place accepts them. There are credit cards such as Master, VISA, Discover, AMEX. There are regular charge accounts which require to pay the balance in full. Also, there are revolving charge accounts which can carry balance from month to month. The annual fee for credit cards is the required annual money amount you must pay ($15-100). The interest (APR) is from 0-29%, but if you pay your entire balance by due date then you will have no interest. Credit limits is the max amount you can spend using your card. You get credit card fees when you go over-the-limit, meaning going over the credit limit. Penalty fees are additional fees due to late payment, over credit limit, returned payment, etc. They could also result in an increase in interest rate.

Tips of How to Control Credit Cards:

You should consider a loan as opposed to using a credit card because the interest rate may be lower. Also, pay the credit card balance in full to avoid minimum payment trap.

It is important to choose the card wisely. The best card is the least expensive with the greatest benefits. Other important tips would be to: avoid too many cards, pay cash, don’t miss payments, read what you sign, avoid identity theft, seek credit counseling if needed, beware of bankruptcy