Section 1: The Basics of Credit
- What is credit? Credit is the ability to borrow money and in return promise to pay it back in the future.
- What are the forms of credit? Different forms of credit include Credit Cards and Personal Loans.
- What costs are associated with credit? Credit is not free, so you it is mandatory to pay Interest APR or annual % rate.
- What determines if someone gets credit and how much they get? Before someone can get credit, the Lender checks the persons Creditworthiness. To do this the Credit Bureau collects information on the consumers' credit and makes it into a Credit Report, which tells the consumers Credit score.
Section 2: Vocabulary Watch
- Credit Bureau: The credit bureau has a record of ever adult in the United States. They have records of things like bounced checks, missed rent payments, if you have ever been sued, or if you have filed bankruptcy.
- Credit Score: The credit Bureau is the one that assigns a credit score to each individual. The credit score is a number that reflects an individuals credit worthiness. A good credit score should be between 300 and 850 (FICO score). The higher the score the better your credit worthiness is. Some good effects on score are on time payments, low debt, long history, and limited number of credit cards.
- Credit Report: A credit report has all credit information on it including credit score. It is made and provided by the credit bureau. A credit report is requested by lenders so they can determine your creditworthiness. You need a credit report when you apply for credit, to check it you get it once a year for free, and when there is suspicion of identity theft.
Section 3: Credit Cards: What you need to know!
- What is a credit card? A credit card is a card with which you can buy stuff now and pay for it later.
- Where can you use credit cards? You can use credit cards almost anywhere including clothing stores and grocery stores.
- What are the benefits and costs of using credit cards? Benefits of using credit cards are that you can buy now and pay later. The costs of using credit cards is that you have to pay an Annual Fee usually between $15 - $100 for using the credit card. Another cost is that if you don't pay the entire balance by the due date the remaining balance transfers over to the next month but now you have to pay Interest(APR) which is usually between 0%-29%. Other costs include Penalty Fees which is an additional fee due to late payment and over credit limit which is when you use money then your Credit Limit.
Section 4: Smart Consumers: Don't fall into the credit card trap!
Everyone likes the idea of using credit cards because you can buy now and pay later, but do not get a credit card till you are between 18 and 21 and you know you are fully responsible on being able to pay your payments on time. Credit cards can either raise your credit score or ruin it very fast. Pay credit card balance in full and avoid the minimum payment trap. The credit bureau will see that you are responsible and pay all your payment on time which will raise your credit score. Choose a credit card wisely, so choose the least expensive with the greatest benefits. Also, avoid having to many credit cards because then you will spend to much and end up in debt. Other tips are always read what you sign, avoid identity theft, get credit counseling if you need it, and avoid bankruptcy.