Are You Creditworthy?

Credit 101

What is credit?

There are two forms of credit: good credit and bad credit. Credit itself is a buy now pay later method of paying for things. Good credit is any purchase that will be beneficial in the long run and is almost a necessity, such as student loan. Bad credit is any spur of the moment purchases, such as a new dress.

Credit can be both beneficial and detrimental to an individual's finances. Using credit will allow you to build your credit score, which is determined by a credit bureau. The better your credit report looks, the lower the lender has to pay towards interest rates on things like credit cards and personal loans.

The primary thing that determines your ability to take out a line of credit is your creditworthiness. Character, Capital, and Capacity are what makeup your creditworthiness. Character is your credit history. Did you pay your bills on time? Capital is all of your assets that could be taken if you do not pay your bills on time. Lastly, Capacity is your financial ability to pay back the lines of credit based on your income.

Credit Cards: Costs and Benefits

Credit Cards are the easiest form of credit available. They are seen as bad credit because they can be used virtually anywhere and at the swipe of a card. The primary benefit of credit cards is they are a great way to build your credit score as long as you are using it responsibly. This means you are paying more than the minimum, and you are paying your bill on time! There are more cons that come along with credit cards though. For starters, you can wrack up a pretty hefty bill in only a short period of time. Also, they take YEARS to pay off because most people will only pay the bare minimum. They are a good way to decrease your credit score and ruin your credit history. With that said....

Here Are a Few Tips:

1) Do not open several credit cards. Two is plenty.

2) Pay more than the minimum. This will build credit and get you out of debt faster.

3) Create a budget. You cannot have unexpected costs if you have something to follow.