The Basics of Credit
The Basics of Credit
First of all, credit is the ability to obtain goods or services before payment, based on the trust that payment will be made in the future. Also known as "Buy now ... Pay later." There are two different forms of credit; credit cards and personal loans. Credit seems like a good idea because you can buy somethings you want when you don't have the money and pay for it later. When you take credit it comes with interest (APR or annual percentage rate) which is the percent you have to pay the money back with. To get credit you must demonstrate your creditworthiness or, in other words, your reliability to pay back a loan. Lenders judge this using three factors; character, capacity, and capital. All that information, or the "three C's", come from a loan application or a credit bureau which collects information on costumers' credit and sells it. The credit bureau also gets to determine your credit score which is determined by your history, payments, and number of credit cards that you owe. Credit is between 300 through 850 and the higher credit the better. At least once a year, you should request a credit report from your lender which will be provided from your credit bureau to check for identity theft.
Credit score is determined by all the factors listed on this picture. Your credit score is between 300 & 850 (or FICO score.) The higher the score, the better. Some effects on score are on time payments which is good score, low debt, long history, and limited number of credit cards are also good scores. When you don't pay your payment, always go over the limit of your credit card and have high debt will result you to have really low credit score.
Creditworthiness means your reliability to pay back a loan. Lenders judge this using the "three C's", which are character, capacity, and capital. Character is the sense of financial responsibility, and dependability. While capacity is our financial ability to repay loan, income and current debt. Capital is the value of what you own, savings, investments, and property.
Your credit record has your credit information and your credit score. It’s provided by credit bureaus but requested by your lender. You should request your credit record when you apply for credit at least once a year for free or otherwise pay small fee but check for identity theft. On a credit report there are always five main parts highlighted; personal identification information, public record information, collection agency account information, credit account information and companies that requested your credit file.
Credit Cards; What You Need to Know
A credit card is a plastic card issued by people for the purchase of goods or services that will have to be payed back. A credit card is like a debit card so you can use it anywhere you want. The benefits of using a credit card is that if you really need something and you don't have the money for it at the moment you can buy it with credit and then pay it back later. The costs of credit are that you have to give more money back to the bank than you borrowed from them. Credit limit is the maximum amount you can spend using that credit card. Over-the-limit fee would be approximately $30 for each charge made beyond limits when you go over your credit card limit. A late fee is when you make a payment late. In order for you to have to pay a penalty fee, it would have to be due to late payment, over credit card limit, or returned payment, which could also result in an increase in interest rate. Annual fee is the required yearly dollar amount that you must pay which is from $15 - $100. Interest rate, or annual percentage rate(APR) is between 0% to 29%. When you make your payment your interest won't go up, but when you stop paying your payments, or go over the limit, your interest is going to go up, which is bad.
Smart Consumers: Don't Fall Into the Credit Card Trap
Consider a loan as opposed to using a credit card because the interest rate may be lower. You should pay your credit card balance in full to avoid minimum payment. Always choose your card wisely because it could be least expensive and you could get greatest benefits. Also avoid too many credit cards, pay cash as often as you can, don’t miss your payments because your credit score is going to go down and your interest rate up. Also you should always read what you sign, avoid identity theft, seek credit counseling if needed, and beware of bankruptcy.