Need to Know About Credit?

By: Stephanie Cornejo & Anais Villafana

The Basics of Credit

Establishing a good credit will be necessary for future purchases where you'll need to ask for a loan. In order for this to be possible, a consumer needs to establish a good credit so that the lender can be certain that they'll get paid. In order for the lender to be sure they're lending money to a responsible person, they can check the person's creditworthiness with the credit bureau. Your creditworthiness is determined by your credit score; the higher your score, the better. If your curious to know what your credit score is, you can ask for a free credit report once a year, or if you'd like to know more than once you can pay. A great way to start establishing your credit is with credit cards. However, if you're going to use credit cards, you need to make sure you pay in full on time. Otherwise, your interest (APR) will go up and you'll have to pay a high interest rate whenever you don't pay your credit card bill on time. Another way to establish your credit is with the use of personal loans.

Smart Consumers: Don’t Fall Into the Credit Card Trap

Vocabulary Watch

Here are some words you need to know:


Credit: The ability to borrow money with the promise of paying the money back.

Credit Score: The score assigned to you that demonstrates how good your credit is. The higher, the better.

Credit Bureau: Collects information on consumers' credit and sells it.

Creditworthiness: Your reliability to pay a loan back

Lender: The person who gives the loan.



Credit Cards: What You Need to Know

A credit card is a card issued to one with a limit of money one is allowed to use and then payback later. It allows you to use the money issued whenever and wherever, but it must be paid back within a grace period.

You are allowed to use a credit card wherever they are accepted. It can be used to pay for groceries, bills, clothing, and anything else.

The benefits to using a credit card is that money is available when you don’t have it in the moment and you are allowed a minimum amount of days to payack. Another positive thing is a credit card can help create credit for future purchases like a car, house, loans, etc. A disadvantage to having a credit card is that if you aren’t responsible with paying back your bills that you owe, you can ruin your credit and later on hurt you in future purchases or applying for a new card.

When opening a credit card, many different things come along with it. Many credit cards have annual fees that come along, if too high that can a problem. Along with each card, comes a credit limit, each person has a different credit limit depending on their income, past credit, and different things they have purchased in the past. With a credit limit, as well comes an APR, which is the interest rate on your card. Most cards can have a very high APR, but if you are sure with paying your bills back on time and in full amount, you can avoid the high APR on your bill and you can avoid the penalty fees that apply. When you are given a credit, you are to not pass the limit they give you, if you fail to do so, you can end up paying an over-the-limit fee and other penalty fees may apply.