The Basics of Credit

Elizabeth Kuc

About Credit

Section one

  • What is credit?

Credit is when you borrow money from the bank and later required to pay them back in return.

  • What are the forms of credit?

There are two types of credit forms, loans and credit cards.
There are a variety of loans, such as car loans, house loans, school loans, etc.
You can get credit cards mostly from banks.

  • What costs are associated with credit?

In the process of paying back after borrowing money, you are required to pay interest plus an additional percentage rate, which can be called an annual percentage or APR.

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

In order to get credit you must make sure that you have to ability to pay back, this is when your credit worthiness will be observed. Certain ways to check is by looking at your capital, capacity, and character. These may also be known as the “3 C’s”.


Section Two

By looking at the three C’s, they will see how much value you own, if you have the financial ability to repay, if you have a steady job, and if you are responsible. If you are in a good position by following those three C’s then you will get a good credit score. This is really important because the lenders have to make sure that they can trust you. Every time you do not pay a bill or do not pay on time, your credit score will lower, which will affect you in the future, for example, when you’d want to buy a house or car. Whenever you want to something that is worth thousands of dollars, the way your credit worthiness will be checked is by looking at your credit bureau or loan application. Both have enough information to determine whether you are trustworthy or not by listing the bills that you pay or not pay on time, if you bounced any checks, ever been in bankruptcy, or ever been sued. So you want to make sure you don't fall in situations like that because it will definitely affect your credit score.


Section Three

● What is a credit card?

Credit cards are cards, usually from banks, for you to purchase items, food’s, or services.
There are a variety of credit cards such as VISA, Mastercard, Discover, and AMEX.

● Where can you use credit cards?
You can basically use them anywhere to buy anything such as gas, pay the water bill, shopping, etc.

● What are the benefits and costs of using credit cards?
However, there are certain restrictions when using a credit card. When using one, you have a limit to how much you can spend. If you go over the limit, you will either pay a penalty fee or will be denied while purchasing an item.


Section Four

So when you'll be handed a credit card, make sure you use it responsibly. You want to make sure you begin with one credit card for your first time, that way you'll be less likely to get into any problems such as late fees. You want to make it simple and easy for yourself. Since it'll be your first time using a credit card, the bank will give you a low credit limit. This is a way they get to see how responsible you are by not going over the limit and, if you borrow any money, they want to see if you won't be late paying fees. Because, if you do, you'll get something called an over the limit fee, which will be an additional fee for paying late. And if you continue to give late payments, your interest rate will increase.