What is Credit?

An explanation of credit and becoming a smarter consumer.

The Basics of Credit

As many of you graduate, you may be getting several offers for credit cards. While you have heard some of the dangers, what is credit exactly? Credit is defined as a certain amount you have to pay back in a certain time. It doesn't matter if you are getting student loans for college, personal loans for houses and cars, or credit cards for miscellaneous purchases because in the end there will be interest that must be paid. After all, banks are a business, and businesses make money. Lenders from the bank are looking to get money, so you have to be careful. Luckily, if you are trustworthy, you will be able to get a low interest rate or APR. But how can you get Creditworthiness? The Credit Bureau for America is an organization that tracks you financially to give you what is called a credit score, which you can get from a Credit Report that they give you. This is what determines if you get a low interest rate, so you must make sure you are taking care of your credit score. If not, you could run into a lot of problems.

Vocabulary Watch

Credit Score- A score created by the credit bureau that is determined by your economic history.

Creditworthiness- A compilation of your assets, income, and credit score to determine if you will pay back the loan.

Credit Card- A card you can use to pay for products with capital that includes interest an other fees. You should use these with caution.

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Credit Cards: What You Need to Know

Credit Cards may seem like the key to happiness, but in reality you should be very careful with how you use one. Why? Because a credit card uses credit to pay for things. As long as you can pay it by the time you need to you will be fine. But if you don't, it could end up costing you because of interest. Credit cards also have other fees like annual fees, penalty fees, and over-the-limit fees that you should watch out for. An annual fee is a fee you use t continue using the card. A penalty fee is what happens when you don't follow the agreements of the card. And an over-the-limit fee is what happens when you have reached your limit for the credit card. Credit cards can be great if you need the money and know you can pay it back, like with a house or a car. You shouldn't be using a credit card to purchase many discretionary items that could put you into debt.

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

When using a credit card, make sure to follow these steps to make sure you are safe:

1. Take out a small amount of credit cards, even if you get many perks.

2. Do not use the card for everything, buy what's important.

3. Use the credit to have smart debt, like student loans, instead of dumb debt, like 7 new pairs of shoes.

4. If you have a problem, consult a professional. You can fix your problems.

5. Be aware of your financial situation at all times. This way, you can make smarter decisions.

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