SECTION 1: The Basics of Credit
Credit can be defined as the ability to obtain goods or services without paying at the moment, but assuring payment in the future. Credit can be used by acquiring a credit card, which is just a plastic card that is used for payment and is issued by banks or businesses. Personal loans are another form of credit, in which a loan is received from a lender, such as a bank, simply for personal use. However, there are separate costs that come with using credit. Those separate costs are called interest. Interest is the annual percentage rate (APR) that is charged for borrowing money or paying on credit. Not everyone is entitled to credit though. The credit bureau, which is a company that collects the credit ratings of individuals, can determine the creditworthiness of an individual. The creditworthiness, same as a credit report, of an individual can be determined by their credit history that basically shows how trustworthy they are with money. By knowing the creditworthiness of a person, a credit score can be given to them, estimating the ability to fulfill financial commitments. If used correctly and paid on time, buying on credit can be really useful when buying expensive goods.
SECTION 2: Vocabulary Watch
- Payee- The person to whom money is paid, or will be paid to if buying on credit.
- Collateral- something pledged to assure payment of a loan
- Wire Transfer- an order transmitted by phone or electronically from one bank to another to pay or credit money
- Credit History- a record of an individual's or a company's borrowing and repaying behaviors; for example: number and type of credit accounts, how long an account has been open, etc.