The Basics of Credit

Deyaneira Garriga

What is Credit:

Credit is the ability to borrow money, with the trust that the payment will be made in the future. There are many forms of credit that people have access to whether it be loans or credit cards. Loans can serve for many purposes and many are personal loans, for example there are student loans to help pay your way through college, mortgage loans to help pay for your home, and car loans to help pay for your car. However the most common form of credit is a credit card, many people believe that getting a credit card has no consequences, its just a card with money that you can pay at the end of the month right? WRONG! When applying for a credit card there are many factors one should consider, it is very important to read the fine print because its the information that credit card companies would rather you not know, like the hidden interest fees (APR), annual fees, and monthly rates. There are three important factors that determine whether or not someone gets credit and how much they get. These factors are also known as the three C's, capital, capacity, and character. Capital is the value of what you own, capacity is the financial ability to repay a loan, and character is then sense of financial responsibility or dependability. The amount of credit that a person gets is determined by their creditworthiness which in turn is determined by their credit score given to them by the credit bureau, the amount is between 300-850, the higher the credit score on your credit report, the better. It is very important to know your credit score because its the first thing lenders check to identify whether or not you qualify for a loan.


Credit Cards

What you need to know:

A credit card is issued by a bank or business for the purchase of goods or services on credit. In other words, with a credit card you can use money that you might not necessarily have with the promise of paying in the future. You can use your credit card practically everywhere, businesses, stores, restaurants, gas stations, online, ext. There are many advantages of using a credit card, like not having to carry large sums of money, you can track your spending's through credit card statements, and some credit cards offer special benefits like membership rewards and discounts. Although there are many advantages of owning a credit card there are also disadvantages that some people might not know about like credit limits and costs that come with them. Some of these cost are interest rates, annual fees, penalty fees, and over-the-limit fees that may go up over time. It is very important to know these cost because you want to make sure you will be able to pay for what your signing up for or you might end up signing up for a whole lot of debt.

How to be a smart consumer:

Although credit cards create great advantages they can also be dangerous if they aren't used correctly. To avoid making bad decisions and getting into trouble there are certain things you can do. One of the best things you can do when you get a credit card is to keep track of your spending's, you can do this by checking your online account. You should also create a budget for yourself so you don't spend what you don't have and pay of your balance at the end of each month to avoid debt. Most importantly don't give out your credit information because you will regret it!