Credit Newsletter

by Jen Kuczynski

The Basics of Credit

Credit is the ability to obtain goods/services before payment, based on the trust that payment will be made in the future. Some examples of credit are credit cards, which are cards issued by banks for the purchase of goods/services using credit. Another example of credit are personal or student loans, which are money borrowed to an individual, by a lender, that will be payed back in the future. Your creditworthiness is what determines your credit score, which the Credit Bureau then transfers into your credit report, which is basically a report of all your credit history. There's also a thing called interest, which is a percentage of a sum of money charged for its use.

Vocabulary Watch

  • Credit: ability to obtain good/service before payment, with payment being made in the future.
  • Creditworthiness: trustworthiness with money based on a person's credit history.
  • Credit Score: number representing the creditworthiness of a person.

Credit Cards: What You Need to Know

A credit card is a plastic card that is issued by a bank, business, etc, which can be used for the purchase of goods/services using credit. You could say there are some rules and regulations to using a credit card, for example; there is an annual fee on all credit cards. This means that you must pay a certain sum of money, based on your creditor, for the privilege of using your credit card. There is also a maximum amount as to how much a card holder can take out at once on their credit card, also known as credit limit.

Your interest rate determines the amount of interest you pay on your card. The higher the rate, the more money you pay. If you violate any of the terms your cardholder expresses, you will have to pay a penalty fee. And for each month you exceed your loan limit, you will also have to pay a fee, which is called an over-the-limit fee.

You can use your credit card at department stores, grocery stores, restaurants, etc. Many shopping places are adapting to the use of credit cards, which is why so many places now allow it.

Many of the costs of using credit cards include what have been explained above (annual fees, interest rates, credit limit, penalty and over-the-limit fees), but there are also many benefits to using a credit card. This includes being able to budget expenses each month when you pay your bill in full each time. There are also credit rewards, which are like mini bonuses for using your card (50% bonus on cash back you earn every year, 0% APR on purchases until a certain date, etc).

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

Here are some tips for using your credit card so that you don't fall deep into debt:

  • Do not fall into the habit of using your credit card as a substitute for actual money. Money and credit cards are very different things, obviously, as you pay with money NOW, and credit is used so you can pay with money LATER.
  • Use your credit card for things you need rather than things you want. Clothes, gas, and food are a few examples of purchases that should not be bought with a credit card.
  • Stay within 30% of your credit limit, that way you will maintain a good credit score, and lower balances will be easier to manage as opposed to higher ones.