By: Maksymilian Barchan

The Basics of Credit

Credit means having the use of something before you pay for it. This ability to borrow money and pay it after each month is making possible to pay for expensive items over a period of time. There are many types and forms of credit that you can choose from, and each has its own terms and purpose:

  1. Student Loans - It is designed to help students pay for college, books and living expenses. It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in school.
  2. Credit Cards - Plastic card issued by a bank, business. It is allowing the holder to purchase goods on credit.
  3. Installment Credit - This is credit that you use to borrow money and promise to repay in equal amounts over a specific period of time.
  4. Personal Loans - A personal loan is an unsecured loan, meaning the borrower does not put up any collateral or security to guarantee the repayment of the loan. For this reason, personal loans tend to carry high interest rates. If a borrower owns a home, a lower interest rate alternative is a home equity loan.

The primary costs associated with credit cards are the discount fee charged by the credit card processing company. Those fees can be charged if you are late with paying bills for a credit card or loan. All types of credit have different fees.

In order to get credit from a lender you have to have good creditworthiness. It is An assessment of the likelihood that a borrower will default on their debt obligations. It is based upon factors, such as their history of repayment and their credit score. Credit Score is a number assigned to a person that indicates their capacity to repay a loan. Lenders are getting your Credit Score and Credit Report from the Credit Bureau. This is a company that is collecting information relating to the credit ratings of individuals and they are making it available to credit card companies.

Vocabulary Watch

Credit Cards : What You Need to Know

Credit card is a small plastic card issued by a bank or business. It is allowing the holder to purchase goods or services on credit. You can use credit cards mostly everywhere. You can pay with it on internet and stores. Credit cards have some costs like:

  • Annual Fees - A yearly fee charged by a credit card company each year for use of a credit card.
  • Penalty fees - It is the very high interest rate charged by the credit card issuer when a borrower violates the card's terms and conditions.
  • Over-the-limit fee - It is the fee charged by a lender if the outstanding balance on a credit card exceeds the credit limit.

All credit cards have a limit on them it is called the Credit Limit. Also all cards have a Interest rate. It is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Smarter Consumers :

Don't Fall Into the Credit Card Trap

  1. Pay your balance on time and in full every month.
  2. Know how much you can afford to charge.
  3. Stay under your credit limit.
  4. Think twice about taking a cash advance.
  5. Check your credit report regularly.