Using Credit: The Guide

The Basics of Credit

Its finally here, the big 1-8. Now that you are considered an adult, there are plenty of new responsibilities that you must account for - one of which is credit.

What is credit? Credit is the ability to make purchases now (using credit) with the promise of repaying the credit in the future and many times with interest, otherwise known as an Annual Percentage Rate (APR) . There are two forms of credit: loans and credit cards. You can use credit via credit cards and many types of personal loans like a student loan or a personal loan. But, before you can begin to use credit, you must demonstrate your creditworthiness.

Your creditworthiness describes your ability and willingness to pay back credit. It also decides what type of credit and how much you can get. Before a lender offers to lend credit, they analyze your creditworthiness which is provided by credit bureaus. Credit bureaus also assign you with a credit score which ranges from 300-800. Your credit score describes your creditworthiness. In order to see your credit score, you must search for your credit report. Aside from your credit score, your credit report also provides other credit information. Your credit report is gathered by credit bureaus and is many times requested by lenders. You may also request your credit report for free once every twelve months (you must pay a fee thereafter), when you apply for credit, or when you suspect identity theft.
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Vocabulary Watch

Credit Cards: What YOU Need to Know

What is a credit card? A credit card is a thin plastic card full of identification and security information. Credit cards can be used to make purchases on credit at various retailers. There are many different credit card companies, some of the most popular are VISA, MasterCard and Citi. Depending on the credit card you choose affects where you can use it. Many credit cards are available for use in many stores both in-person and online. But, some credit cards are restricted to only certain retailers online, certain retailers in-person, or both.

Before applying for a credit card, there are certain regulations and fees that you should consider. A credit card, depending on the type of card and the company, may have annual fees, or a fee charged annually for the service of the card. Along with annual fees, there may be a penalty fee. A penalty fee may be applied if you have violated the regulations of a card like making a payment late. Within the regulations of a credit card, an interest rate (APR) will most likely be described. An interest rate (APR) is the amount of interest charged after a grace period, or period you have to repay your credit when a purchase is made. A credit limit may also be described in the regulations. A credit limit is a limit on the amount of credit you may use. It is important to pay close attention to your credit expenses and your credit limit because if you exceed your limit an over-the-limit fee may apply.

SMART CONSUMERS

Don't Fall Into the Credit Card Trap!

Do's:
  • Pay close attention to the annual fee, annual percentage rate (APR), grace period, credit limit, and any over-the-limit fees in a credit card's regulations
  • Aside from paying the minimum charge of a credit card if the balance rolls over from month to month, try to pay more to reduce the chance of an overwhelming debt
  • Pay your charges within the grace period!
  • If you do not repay your credit on time, make it a priority to repay it ASAP!

Don'ts:

  • Apply for a credit card without reading the regulations
  • Ignore charges
  • Disregard the credit limit
  • Spread charges amongst various credit cards (multiple credit cards will decrease your credit score)