The World Behind Credit

The Truth Revealed

The Basics Of Credit

What is Credit?

The ability to borrow money in return for a promise of future payment
  • "Buy Now and Pay Later


Credit is not Free, you have to pay and Interest

  • APR or annual % rate

Different Forms of Credit

Non-Revolving Credit

  • known as installment agreements
  • requires you to pay a fixed monthly amount, until the principal is paid off at which point the account is closed
  • Ex: Mortgage, Auto and student loans, Personal Loan


Revolving Credits

  • Monthly payments
  • they are credit cards and department store cards
  • based on how much credit you have used and how much you choose to pay off each month


Secured Credit

  • refers to loans secured by an asset like home or car
  • considered a safer risk on behalf of lenders


Unsecured Credit

  • does not involve putting down collateral to obtain financial resources
  • refers to Credit and retail cards
  • Carrying to high of debt-to-credit ratio will cause your credit score to suffer

Short-Term Loan

  • Pay-day loan is a short-term cash advance secured by your paycheck.
  • risky example, type of Credit, namely because they come with sky-high interest rates
  • if you are forced to take out a short-term loan
  • make sure you pay it off as soon as you can to avoid falling further into debt and damaging your credit score
  • lenders like to see a number of different types of credit report because it proves how you have managed your finances across several accounts over time



The Costs that are associated with Credit

  • Credit is not free at all. You have to pay a interest rate and this rate is based on what credit you want. This can be different for the different Credits.
  • The lower the interest the better because you get to pay less
  • The higher the interest the more you have to pay.
  • You need to show your Creditworthiness to the Credit Bureau so they can see and give you a good Credit score.


What Determines of Someone gets Credit and how much?

To get Credit, you have to demonstrate your Creditworthiness, which its the reliability to payback a loan


There are Three factors that are used to determined who gets Credit and they are

  • Character: sense of financial, responsibility, steady job
  • Capacity: Financial ability to repay a loan, High enough income, major expenses and debt
  • Capital: Value of what you own, saving, investments, property


This information all comes from the Loan Application or a Credit Report from the Credit Bureau. A Credit Bureau is an agency which collects and sells information about the Creditworthiness of individuals.

Vocabulary Watch

Credit Bureau

  • an agency which collects and sells information about the Creditworthiness of the individuals

Credit Cards

  • A card that allows you to buy thing without money. They are used to pay for goods and you have to pay for the things that you buy with money later.

Credit Score

  • Its a number that reflects your Creditworthiness.
  • You need a score between 300 and 850.
  • The higher your score is the better

Credit Cards: What You Need To Know

What is a Credit Card?

A plastic Card issued by a bank, business, etc, for the purchase of goods or services on credit

It allows the cardholder to pay for goods and services based on the holder's promise to pay for them

  • Common Cards: Visa, MasterCard, Discover, AMEX
  • Incentives: Cash back, points, airline miles


Regular Charge Accounts

  • Must Pay balance in full
  • Ex. American Express


Revolving Charge Accounts

  • Can carry balance from month to month
  • Ex. Visa, MasterCard


Where can you use Credit Cards?

The places that you should use your credit card is at places like the grocery store, any small amount of bills to pay and small stores like the flea market or stores with sales going on. Other places that you can use it is at restaurants, gas station, hotel, and airlines. You should use for emergencies.You can use it anywhere but you have to use it wisely and not a lot. Never use it for large bills or for something that you don't need. Use them only for the things that you need and are necessary.


Benefits and costs of Using Credit Cards

Benefits:

The benefits on have a Credit Card is that it allows the consumer to purchase more goods and the more the people buy with their credit cards the more jobs are created and that can help the economy. Also if people have more jobs than people are able to spend more money with their credit cards. Other benefits that must people like is that Credit Cards offer an enormous advantages over the methods of payment. The main benefit that everyone likes is that you can buy things and you can pay it later and that is a good thing because you have time to pay it off.


Costs:


You have to pay an Annual Fee

  • Required annual $ amount you must pay
  • $15-$100


Also there is an Interest (APR)

  • its is between 0%-29%
  • Pay entire balance by due date= no interest


There are Credit Limits

  • Max amount you can spend using card
  • Over limit= penalty fee or declined
  • Approx $30 for each charge made beyond limit


There is also Credit Card Fees that you have to pay

  • Over-The-limit: Going over the limit
  • Late Fee: Making payment late
  • Penalty Fees: Additional fee due to late payment, over credit limit, returned payment

Could also result in an increase in interest rate

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

Safe Ways on Using Credit Cards

A safe way on using Credit Cards...
  • is consider a loan instead of using a credit card if you have to pay something that is a large amount of money and if you do this then the interest rate can be way lower.
  • Always pay credit card balance in full and avoid minimum payment trap.
  • Choose the Credit Cards wisely. Find information on the Credit Card that you want to get. Don't be afraid to ask questions at the bank about it. Get the ones that are least expensive and that has the greatest benefits
  • Avoid getting a lot of cards
  • Always pay in cash
  • Never miss your payments
  • read what you sign carefully