Learning About Credit

The Basics of Credit

Credit is the ability to borrow money in return for a promise of future payment to the lender. The different forms of credit are credit cards or personal loans. Some costs associated with credit are that they charge interest on how much money you borrow. Also, having credit cards or money available right away might cause you to overspend. You have to be a trustworthy person for lenders to let you borrow money. Before lending you money banks or credit card companies check your credit worthiness. The credit bureau checks if you have the 3 C's: character, capacity, and capital. They check your credit score and if it is high they know you are able to borrow money and eventually pay it back.


What are credit cards?

A credit card is a card given by a bank or business used as cash to purchase goods on credit. Before applying you have to check the credit card's annual fees and interest on your purchases. The credit card can be used anywhere, but it is better to use it for larger purchases. Some companies have a credit limit, so make sure you have enough credit to spend or you could be charged an over the limit fee. Some benefits are that you can buy items now and pay for them later and purchase more goods. The costs are that some can overuse their card and get penalty fees. There is interest on your purchases so you over time you end up spending more for what you bought.

Smart Consumers

  • Be sure to pay the minimal fee on your credit every month.
  • Just because you have instant cash, don't over spend.
  • Make sure you compare credit cards to see which can give you a better deal.