Credit Corner

The Basics of Credit

In today's economy, many would love to be able to to just pay for expenses without out having to worry about breaking the bank. Well, with credit cards you can. Credit is the ability to borrow money in return for agreeing to pay back the credit card company with interest. There are many forms of credit, all of which can be combined into two separate categories: loans and credit cards. A loan, such as a student and personal loans, is a chunk of money that is borrowed all at once, while credit card is a small plastic card issued by a lender that allows the holder to purchase goods and services on credit. For both of these situation, the "loanee" and card holder must pay back the money with interest. In order to apply for a credit card or loan a person must be 18 years of age. Also, his or her creditworthiness must be evaluated by the Credit Bureau who then provides their credit report to the lender. This information is then used to (1) determine a person's credit score and (2) the person's APR (Interest) on their potential credit card. The costs that are associated with a credit card are annual fees and a person's APR. Also, if the card holder pays their credit card payment late, goes over their card limit, or racks up other fees, the card holder must pay those off as well.

As stated before, a person's creditworthiness determines if they get credit and how much they get. A person's creditworthiness is broken down into three sections: capital, capacity, and character. In order to truly evaluate whether or not a person is responsible enough to get a credit card, credit card companies look at the value of your belongings, if you are capable of paying them back with interest, and if you are dependable. Your dependability is based on your credit history.

Vocabulary Watch

Credit Cards: What You Need To Know

A credit card is a small plastic card issued by a lender that allows the holder to purchase goods and services on credit for a fee or interest on their purchase. You can use credit cards pretty much anywhere. Some credit card companies even offer rewards if you use your credit card for certain expenses, like gasoline or airline tickets. When you are thinking of applying for a credit card you must consider many factors in order to find the credit card that is best for you. For the most part, credit card companies offer 0% APR for a year or so and also don't require and annual fee. But, after the year is up your interest rate increases to about 20%. One must also be aware of their credit card's credit limit so that you don't get charged an 'over-the-limit' fee for going over. On top of over-the-limit fees, one must also be aware of additional penalty fees such as late fees and cash advance fees. Although credit cards to seem very costly what with it being very easy to go into debt and ruin your credit score, they do have benefits. As stated before, many credit card companies do offer rewards for using your credit card. These rewards include and are not limited to free plane tickets and early access to concert tickets.

Smart Consumers: Don't Fall Into the Credit Trap

Obviously it can be very hard not to spend the 'imaginary' money that credit cards provide us with. This is why it is important to be a smart spender. Only use your credit card, when absolutely necessary and if you know you will be capable of paying the credit card company back. Also keep in mind that you will also need to pay interest. Keeping a budget could be a very helpful way to determine this. Overall, In order to avoid going into debt, It is important to stay up-to-date with credit card payments. This avoids late fees and improves your credit score.