Credit

by: Angie Nicasio

The basics of credit

So you're probably wondering, what is credit right? and right now you are at the point of your life where you receive all sorts of credit card offers. So let's go over it. Credit is like a form of financial trustworthiness. Credit lets you use goods and other resources while you pay for them or you can pay for them later. In order to get those resources you need, before paying for them, you need a good credit score. A credit score is kind of like a scale on how much you can be trusted with financially. For example, if someone has a bad credit score, they might only be able to buy a 50 thousand dollar house, and a person with good credit might be able to get a 200 thousand dollar house because the bank knows that the person is "financially trustworthy" with such amount of money. Creditworthiness is how much your credit score is worth. So how are banks and other companies able to know how much your credit is worth? That's where a credit bureau comes in, a credit bureau is an agency that collects information from many resources and provides companies with an individuals creditworthiness.This is where credit report comes in, a credit report is like a record of how an individual has payed or not payed anything in their past and this credit report is by a credit bureau. Someone who might need an individuals credit report might be a lender. A lender is an individual or a company that has money for people to borrow. They use a credit report to determine if an individual will be able to repay the loan, usually with an interest.

Section 2: vocab watch


Credit score

A number that representing the likelihood of a person to pay his or her debts. Many companies will look up an individuals credit score to see if the person will pay or not. (for example: when someone wants to buy a car)

Interest

Personal Loans

These loans are granted for personal use, like to buy a new TV or because you need a little extra cash, as opposed to business or commercial use. Many of these loans are secured by a co-signer, meaning that if the person that took out the loan does not pay, the co-signer is responsible for that payment. Repayments are usually fixed payments over a fixed amount of time.

Credit Bureau

A credit bureau is an agency that collects individual credit information and sells it to creditors so they can make a decision on granting loans. A credit bureau does not determine whether an individual qualifies for credit or not, it only collects information in the history of a persons credit habits. A credit bureau is also known as a consumer reporting agency or credit reporting agency.

Section 3: Credit cards: what you need to know

So, you're probably wondering, what is a credit card? A credit card is like borrowed money that you eventually need to pay back, but you will need to pay interest. How else do you think banks make their money? It's easy to use a credit card because you can pay back in payments. Every credit card comes with a credit limit. Credit limit is the maximum amount of money that can be borrowed without penalty. Exceeding your credit limit can result in an over-the-limit fee. You can easily use a credit card ANYWHERE. That's why it is so easy to use one. And that's also why it is so easy to fall into debt with credit cards because you can keep spending and spending so easily. But credit cards are not all that bad, you can build up your credit with credit cards, even if you just use your card for gas.

section 4: Don't fall into the credit card trap

Again, you can easily fall into debt with credit cards.


There are many ways to keep yourself safe when using a credit card:


  • Pay your credit card bills on time
  • Stay well withing your credit limits
  • Do not take on too much debt with MANY different credit cards
  • DO NOT use your credit card to make every purchases (ex. food, clothing, gas). Using your credit card as a substitute for cash can quickly lead to debt.
  • Pay as much as you can on your bill each month. Not only minimum-only payments.