Credit Newsletter

Miriam Hernandez

Basics of Credit

What Is Credit?

Able to borrow money in return for a promise of future payment

Credit Forms:

Student loans, loans, and credit cards

Credit Costs:

Credit is not free. You have to pay interest. (APR or annual % rate). Fees on late payments, over-the-limit, and penalty fees.

To get credit, you have to demonstrate the 3 C's of credit for worthiness.

  • Character
  • Capacity
  • Capital

Capital is the value of what you own such as property, savings, and investments. Capacity determines your financial ability to pay back a loan. Character is your sense of financial responsibility; steady job, residence, if you pay your bills on time. Who gets all this information from you? The Credit Bureau. They have a record for every adult and give you a score from 300-850 which is reflected by your creditworthiness. This is called your Credit Score. The higher your score, the better. Your Credit Report has all your credit information and credit score. It's provided by Credit Bureaus and requested by lenders. Personal loans can be given to you and based on your credit, they're able to determine whether or not you're able to pay them back, your APR, and the time frame.

Vocabulary Watch

Credit Cards: What You Need to Know

A credit card is a plastic card that lets you purchase goods/services by promising to pay back in the future. You can use credit cards anywhere as long as you're financially able to pay back what you owe. When purchasing a credit card, there's an annual fee that must be paid. The amount is usually about $15-$100. Interest (APR) is your balance that must be paid by your due date. If you pay it on time, no interest. If you don't then the rates are 0%-29%. Credit Limit is when you have reached the max amount on your card. There's a penalty to this called Over-the-Limit which costs about $30 for each charge after your limit.

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

  • Consider loan before using a credit card: interest rate may be lower
  • Pay credit card full in balance
  • Choose card wisely: least expensive; greatest benefits
  • Avoid too many cards
  • Pay cash
  • Don't miss payments
  • Read what you sign
  • Beware of bankruptcy