Money Matters

Erika M. Plaza

Budgeting Basics

Your credit is your ability as a customer to obtain goods or services before payment based on the trust that the payment will be made in the future. Some forms of credit include student loans, credit cards, and personal loans.

Some costs that are associated with credit include additional interest charges and money that must be paid back using future income. Some benefits of credit include the convenience of the card itself and instant money for emergencies such as unemployment, illness, death, and/or property loss.

The availability of credit and how much can be received all depends on one's creditworthiness. One's creditworthiness can be determined by his or her credit score. A credit score is a six-factor score that includes credit card utilization rate, on-time payment history, age of credit history, total number of accounts, number of hard credit inquiries, and number of derogatory marks. One's credit score can be accessed through one's credit report, or documents that detail a person's financial history specifically related to credit.

A company called the Credit Bureau is responsible for acquiring the information that is on a person's credit report. A lender, or organization or person that lends money, is more likely to offer credit to people that have good credit scores.

Vocabulary Watch

Some important vocabulary words to remember include:

1. Credit: The ability as a customer to obtain goods or services before payment based on the trust that the payment will be made in the future

2. Annual Percentage Rate: the annual rate that is charged for borrowing money

3. Collateral: Something pledged as secuirty for repayment of a loan, to be forfeited in the event of a default

Credit Cards: What You Need To Know

A credit card is a small plastic card issued by banks, businesses, and/or other organizations. One can use a credit card anywhere that accepts them. An interest rate, or APR, is a part of a loan that is charged as interest to the borrower. Interest rates help credit card companies make profits.

Some benefits of using a credit card include the convenience of the card and any rewards that the card may offer. Some costs of having a credit card include annual fees, or yearly fees charged by a credit card company for use of a credit card, penalty fees, or money charged as punishment, and over-the-limit fees, or fees that are charged when one's balance goes over his or her credit limit.

A credit limit is the maximum amount that a credit card company will allow someone to borrow on a single card.

The Credit Card Trap!

Here are some ways to stay safe while using credit cards:

  1. Get a credit card with advanced security options such as photo identification
  2. Never give your credit account number to anyone over the phone unless you initiate the call
  3. Save receipts
  4. Record receipts against monthly statements
  5. Never write down account or PIN numbers