The Basics of Credit

Credit is the ability to borrow money with the promise that the money will be retured by a certain date.

In order to obtain good credit, you must demonstrate your creditworthiness. Creditworthiness is your ability to pay back a loan. In order to get a good credit score and ensure your creditworthiness make sure that all payments are made on time, have a limited number of credit cards, and a low debt.

A lender is able to determine your creditworthiness by checking information provided by the Credit Bureau. The Credit Bureau also provides a credit report that states your credit score which is between 300 and 850. The higher your credit score is the better because a bigger loan will be made with a low interest rate.

Vocabulary Watch

Credit Cards: What You Need to Know

A credit card is a card issued by businessess such as banks that allow the holder to purchase goods or services on credit. These cards allow you to "buy now, and pay later."

  • Costs of using a credit card:

    • Annual fee must be paid

    • Interest rates are applied when the entire balance is not paid by the due date

      • Penalty fees are received for not paying on time.

    • There is Credit limits which is a specific amount of money you can spend with the card. If you exceed this limit, you will be charged an over the limit fee.

  • Benefits:

    • While many credit card companies are flexible with their cards they also offer special features and rewards. Some rewards may include bonus points, flight miles, discounts for events, concert and VIP tickets, and some cards even let you choose your payment due date.

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

Do the following to avoid falling into the Credit Card Trap:

  1. Pay on time

  2. Pay in full

  3. Attempt to avoid any late payments

  4. Set a budget to avoid going over the limit