Credit

Jessica Magnifico, Brooke Hebert

The Basics

Of the many definitions of "credit", one of the most important is "financial trustworthiness". Your credit score is the most important factor lenders consider when you apply to borrow money - for a car or house - or open a credit card account. Building good credit us an important step is reaching financial independence and you can get there by doing things like: paying all your debts on time, using a student loan for tuition and book and applying for a credit card

Credit Cards: What You Need to Know

A credit card is a card issued by a bank, business, etc. for the purchase of goods on credit. Credit cards could be used at any store, business, etc. where credit cards are accepted as a form of payment. Using consumer credit involves both advantages and disadvantages for individuals. Before you actually purchase anything, you must pay an annual fee to the card company to use the card. Like other forms of credit, credit cards provide the opportunity to delay payments for goods, and it is a source to go to when in need of emergency funds (wanting those new jeans is NOT a situation where you’re in need). Also, most credit card companies offer incentives (A thing that motivates or encourages one to do something) like cash back, airline miles, and points. Although incentives may make using credit sound appealing, there are some disadvantages, too. 1. High interest charges: companies charge as high as 20 percent for any purchases that aren’t paid in full at the end of each month! 2. Temptation to overspend: it is easy to overspend because you don’t have to pay for purchases upfront and sometimes it doesn’t feel like signing a piece of paper really feels like you’re spending money. Although you may think you have an unlimited amount of money, you don’t. Make sure to be aware of the credit limit on your card.3. Unpaid balances: by spending more than you can pay each month, you end up paying high interest rates.Because you are only billed once a month, it is also very easy to forget about purchases you have made using a credit card. The fees that are due to late payment, returned payment or going over the credit limit are penalty fees. You may end up with a very unwelcome surprise at the end of the month when you have spent more than you have an receive over-the-limit fee!

Vocabulary Watch

Credit Limit: maximum amount you can spend while using a credit card.


Credit worthiness: an assessment of the likelihood that a borrower will pay back the money spent on credit.


Interest (APR): only payed if the balance is NOT payed by sue date.



Don't Fall Into the Credit Trap

1. Avoid having too many credit cards
2. Avoid late payment
3. Make sure to check your credit report (it's free once a year!)