The basics about credit and why it is important.
The Basics of Credit
Credit is a loan, not a grant. When someone pays back their loan, the lender will require them to pay an interest rate or an annual percentage rate (APR) in addition to the loan. It is important to pay back your loan because this will affect your creditworthiness which is your reliability to pay back a loan.
A lender can find out you're reliable enough by checking with a credit bureau which is a company that collects your credit information. This company assigns each adult a credit score. A credit score is a number ranging from 300 to 850 on how well you handle your ability to repay a loan. Lenders will also look at a credit report provided by the bureau to view your credit information and score. The better your score is, the greater chance there is that you will get your loan and not pay as much as someone with a bad score.
A number ranging from 300 to 850 assigned to a person that indicates to lenders their capacity to repay a loan
The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.
A small plastic card issued by a bank or business allowing the holder to buy goods or services on credit.
Credit Cards: What you need to know
When you pay back a loan you also need to pay an interest rate (APR) in addition to the loan. It is important to know what credit cards come with multiple fees. Some credit cards require you to pay for an annual fee for having the ability to use that specific card. There are also penalty fees for late payments or exceeding your credit limit. A fee for going over your limit is also called an over-the-limit fee.