Credit

Do people need to be protected or encouraged from credit?

Basics of Credit

Credit is a way of receiving goods a services before paying for them. Basically, buy now and pay later. There are two major type of credit, personal loans and credit cards. Loans are obtained form organizations that lend money called lenders. People mostly use personal loans when buying a car, house, or paying for school.


Creditworthiness it determined before someone gets a credit card. It uses factors like character, capacity, and capital. Places like credit bureaus collect information on people's credit and sell it to credit card companies. This is called a credit report. Credit bureaus also determine credit scores. A good credit score is between 300 and 750 and the higher the better. These factors determine if a person gets credit and how much they get.


There are some costs associated with credit like APR. The annual percentage rate is different for every credit card and is paid every year.

Vocabulary

Capital: Value of what is owned, for example savings, investment, and property


Capacity: The financial ability to repay loan


Character: sense of financial responsibility; dependability

What You Need to Know

A credit card, usually plastic, is a card issued by banks and businesses that allows consumers to purchase goods and services on a line of credit.


When making really small purchases, using a credit card isn't a good idea because of interest. Store credit cards can only be used at the store that credit card is for. Some places of business don't take credit but most places do.


There are some costs with using credit cards. Every year there is an annual fee of about 15$- 100$. Credit cards have an interest rate anywhere from 0%- 29%. If the entire balance is paid by the due date, there is no interest. Every card has a credit limit. If the card goes over the limit, there is a penalty fee or an over the limit fee.

Don't Fall Into The Credit Card Trap

There are many things to be done to use credit cards responsibly. Sometimes loans are better to use instead of credit cards because the interest rates can be lower. Another thing to do is to pay credit card balances in full and choose cards wisely. Try to not have too many cards, and miss any payments. Make smart purchases that can be backed up with real money.