Credit

Sunny Patel

BASICS OF CREDIT

Many people have heard of the term credit but don't really know what it is or what it does. Credit is the ability to borrow money and pay it back later. You can use credit to get loans for things such as school, a new car, or even a home; but not everyone has the ability to do these things. Before receiving personal loans and credit cards, lenders will check your credit score and credit report. Your credit score is a reflection of how responsible your are financially and your creditworthiness. Credit scores are ranked between 300 and 850; the higher the better. You'll have a great credit score if you pay your bills on time, have low debt, have a limited number of credit cards, and have a good credit history. Your credit report can be obtained through the credit bureau. They have a report on every adult as well. Although credit seems harmless, if you don't take precautions, credit can really harm you. If you have low credit, you'll face high interest rates on your credit cards and loans. Not only that, many of your loan applications might get rejected. It's important to make sure you spend your money wisely and not fall behind on your payments.

VOCABULARY WATCH

CREDIT CARDS: WHAT YOU NEED TO KNOW

Credit cards are an agreement with a bank in order to receive a certain amount of money and promise to pay it back later. You can use credit cards to purchase whatever goods or services you desire; however, you cannot exceed your credit limit. Based off someone's credit rating, banks assign the maximum amount of credit a person can get on a single card. If you exceed your credit limit, you may be charged with an over-the-limit fee. After borrowing money, you have to pay the banks back on time or you'll be charged with a penalty fee, such as interest. Interest rates depend upon what type of credit card you have and also upon how much money you've spent on the card. Some credit cards also have an annual fee. Annual fees are yearly fees that you have to pay in order to keep a credit card balance. Furthermore, you can also enjoy benefits by paying your bills on time. Many credit companies offer money back and also reward points; however, credit cards are very dangerous. If you fall behind on your payments, interest will affect you greatly and could lead you into debt. Also your credit score will fall drastically and it will be hard to apply for loans and other things.

HOW TO BE A SMART CONSUMER AND AVOID FALLING INTO THE CREDIT TRAP

  • Make sure you keep up with your payments. Interest can add up very quickly.


  • Don't pay the minimum amount


  • Limit yourself to only a few credit cards


  • Pay with cash when purchasing small items


  • Only use your credit card for things you absolutely need; make rational purchases

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