Credit Newsletter

by: Bethany Alioto

Section 1: The Basics of Credit

Q: What is credit?

A: Credit is the ability to borrow money in return for a promise of a future payment. Credit does not come free, and you must pay interest, called APR (annual percentage rate). The APR is described as the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate.


Q: What are the form of credit?

A: Two different forms of credit are credit cards; which are cards that charger your account, and you must pay that payment you made in full. And personal loans; a loan that establishes consumer credit that is granted for personal use. The bank, the lender, can decided who they want to give the money to depending an a person's credit score.


Q: What costs are associated with credit?

A: When you use your credit card to purchase an item some costs that are associated with credit is an annual fee; which is a yearly fee to having a credit card. A few more fees that you would have to pay is an interest rate, late fee, and cash advanced fee; which is allows you to actually take out cash and that cash will be charged on your credit card.


Q: What determines if someone gets credit and how much they get?

A: The thing that determines if a person gets credit is defined by their creditworthiness; your reliability to pay back a loan on time. Lenders decide upon these factors of character, capital, and capacity. The lender can ask for a credit report; a report that identification info, record info, collection agency information, and credit account information. Upon request from the bank about a credit report on the person the Credit Bureau will show the bank your report, and your credit information. Depending on your credit score and report the bank will decide how much money they will give to you.

Section 2: Vocabulary Match

The three C's of Creditworthiness:

  • Capital: A person values what they own, and can use capital to pay loans if needed.
  • Capacity: Is financial ability to repay a loan based on income, expenses, and debt.
  • Character: Is a sense of financial responsibility, a person's dependability is based on their credit history.

Section 3: Credit Cards: What You Need to Know

Q: What is a credit card?

A: A credit card is a card that charges your account, and you pay that payment you made in full.


Q: Where can you use credit cards?

A: You can use your credit card anywhere that takes your credit card. You can use it in stores and other places.


Q: What are the benefits and costs of using credit cards?

A:


  • Pros: Some examples of the incentives of using the credit card is cash back, points, airline miles. Also, using your credit card can raise your credit to get better interest rates.
  • Cons: You have to pay annual fees; which is a fee that is required for you to pay yearly. Credit limits is the maximum amount you can spend using the card and fees, such as over-the-limit, will come if you go over the limit. There could be additional penalty fees if a person makes a late payment, over credit limit, returned payment, etc. This penalty fee could result in an increase in interest rates.




Section 4: Smart Consumer: Don't Fall into the Credit Card Trap

  • Pay credit card balance in full.
  • Choose a credit card wisely; look at the interest rate, fees, benefits, etc.
  • Avoid having too many cards.
  • Pay cash.
  • Don't miss payments.
  • Read the contract carefully before you sign.
  • Only buy what you can afford.
  • Avoid identity theft by being careful with your personal information.