By: Selina Novielli
Credit is basically buy now; pay later, and consists of loans and credit cards. Credit is not free you have to not only pay back what you spent but also the interest on it. Interest is the amount the debt increases based on your interest rate. In order to raise your credit you must display creditworthiness; which is your reliability to pay back on a loan on time. If you don't pay on time your credit goes down. This is reflected in your credit score which can affect your ability to get a house, car, and different interest rates. Your worthiness comes from the credit bureau which collect info on your credit and assign you your credit score. A credit report can be accessed for free once a year more than that there is a small fee, and it shows your identification information, record information, collection agency information, credit account information, and places that requested your credit file. You, the person using your credit, are a lender. You are expected to pay back what you borrowed from the government.
The 3 c's of creditworthiness
Capital, which is the value of what you own, savings, investments, and property, and you can use capital to pay a loan. Capacity, which is your financial ability to pay back a loan based on income, expanses, and debt. Character, which is your sense of financial responsibility, dependability based on your credit history.
All about credit cards
Credit cards are like debit cards but with credit which means to buy now and pay later. You can use a credit card anywhere that accepts your type of credit card such as visa, master card, american express, etc. There are many pros and cons of using credit cards. Some examples of incentives are cash back, points, and airline miles just for using the card, and can raise your credit to get better interest rates. Some downsides to credit cards are annual fees which is the required amount you have to pay per year, Credit limits which is the max amount you can spend on a credit card and fees can be applied if you go over, late fees for late payments, and can hinder you from getting a house, car, or loan if you have a bad credit score.
Credit Card Tips
- Only buy what you know you can pay back including interest.
- Determine if you really need it like car payment or rent
- Don't charge it if you don't have to.
- Choose your card wisely; look at interest rates, benefits, fees, etc.
- The less credit cards the better
- Be careful with personal information to prevent identity theft.