Give Yourself Some Credit!

The Basics of Credit

Sometimes when you're out shopping, you don't quite have enough money on you to buy what you wanted to purchase, but you don't have to give up any of the items in order to afford the purchase, you could use credit.

Credit is the ability to borrow money in exchange for promising to pay in the future. There are different kinds of credit, such as credit cards and student loans. A credit card is a small plastic card given to you buy a bank or a business that allows you to purchase items with credit. There are many different companies that sell credit cards, such as Discover, Chase, and American Express, and those companies off different types of credit cards that offer different rewards and discounts.

Credit may sound great, but there are some catches to it. For some credit cards, there are annual fees that you have to pay for having the card. Also, there are fees for going over your limit of credit borrowing and paying late. When paying back your borrowed credit, there is interest added onto the money you borrowed. If you borrowed $100 dollars from a credit card company, you might have to pay $115 back to them, but this value varies from the different cards and your credit score. Your credit score is a number given to you that represents your ability to pay back loans. If your credit score is bad enough, some companies might not even give you credit to borrow because they believe you might not pay it back. The lower your credit score, the higher your APR on a credit. APR (Annual Percentage Rate) is how much interest you have to pay on credit that you borrowed. What determines your credit score and APR is your credit worthiness.

Credit worthiness is your reliability to pay back a loan. It is bases off of Capital, Character, and Capacity. You Capital is the value of what you own. Your Character is how financially responsible you are, your dependability, and your credit history. Your Capacity is if you have enough money to pay off the loan. All of this information is in your credit report, which is a report of your history on how well you are able to pay off loans. The Credit Bureau collects this information and sells it to whoever pays for it, usually the lender, whoever is lending you the money. When you are loaning money to one of your friends, you probably will not look at this because you know the person and believe they will pay you back. A personal loan is risky because you do not know if the person you lend the money to will pay you back.

Credit Cards

One of the forms of credit is a credit card. A credit card is something that a credit business gives you to borrow credit from them. The amount of credit that you could borrow varies depending on what your credit score it. This is called you credit limit. The higher your credit score it, the more credit you could borrow and the lower the interest rate on the credit. Interest rate is another name for APR, which is how much more of the loan you must pay back to the company.

APR is only one of the fees that you pay while owning a credit card. There is an annual fee that you have to pay for just owning the card, but some credit cards do not have any type of annual fee. Ff you were to surpass your credit limit, you would have to pay an over-the-limit fee. There is also a penalty fee you must pay when you make a late payment. All of these fees vary from company to company and the different types of credit cards they offer. Also, each different type of credit card offer different type of rewards, such as cash back on purchases or miles you could redeem for a vacation.

Smart Consumers

When using a credit card, you need to be careful. You don't want to purchase everything using a credit card because the money you owe will add up to a lot. You only want to use a credit card when you have to, such as a down-payment on a house or car, or if you are buying something off the internet with no other way to pay. Use cash, check, or a debit card whenever you can to avoid having to pay the interest on credit you borrowed.