Learn about how to use credit without going into debt.

The Basics of Credit

Credit is the ability to borrow money in return for a promise of future payment. To use credit You must pay an interest rate. To get credit you must show that you're reliable enough to pay back the loan, this shows your creditworthiness. If you aren't reliable then no one is going to want to be your lender. The three factors that determine if and how much credit you get are, capital, capacity, and character. What impacts how much credit you get is your credit score. To prevent from going into debt as a consumer you should keep a credit report for everything you purchase. There's multiple forms of credit.

- credit cards

- student loans

- car loans

- mortgage

- personal loans

Vocabulary watch

Credit report- Contains information on your credit history and the status of your credit accounts.

Creditworthiness- Shows how reliable you are as a borrower and lets lenders decide on whether or not they should give you a loan or credit.

Credit bureau- A company that collects the credit ratings of individuals and makes them available to credit card companies, financial institutions, etc.

Credit Cards: What you need to know

Credit cards are plastic cards that allow you to borrow money from your bank as long as you promise to pay it back. Credit cards often come with an annual fee that must be paid in order to keep the card available. Some cards require interest rate fees (APR) while others do not. Credit limit all depends on how much credit the lender is willing to lend to the debtor. When you use a credit card and go over the limit of credit allowed you will be charged with an over-the-limit fee.

Smart Consumers: Don't fall into the credit card trap

The first rule of using a credit card is that you are not getting free money when you obtain a credit card every purchase you buy with a credit card has to be payed back otherwise you will fall into debt and owe every dollar you make to the bank. The IRS will come looking for you when you refuse to make payments to the bank. Credit cards should only be used in emergencies, not to spoil yourself. If you use a credit card to buy things you don't need to live you better find a way to get that money back to the bank otherwise your credit will go down.