Learning the Basics

The Basics of Credit

  • What is credit? Credit is being able to borrow money, and promising to repay it in the future.
  • Forms of credit are personal loans and credit cards.
  • You must pay interest on credit. (APR: Annual Percentage Rate)
  • Creditworthiness determines how much credit you get if any. The Credit Bureau collects information on if you miss a payment, file bankruptcy, bounced a check, etc and they determine your credit score. The higher your score the better.
  • Your Credit Report is credit information and your score. Credit Bureau's provide it and lenders request it. It's requested when you apply for credit or identity theft is suspected.

Vocabulary Watch

When you receive credit you are borrowing money that must be returned. This is not free money. At the end of the month you will get a bill with all your expenses on it. If you miss payments and fall into debt you will get a low credit score which could leave you unable to make important purchases in the future.

In order to even get credit you have to prove creditworthiness. Creditworthiness will determine how much credit you will get. You are not entitled to credit. If you cannot prove you're creditworthiness you will not receive credit. To show creditworthiness you must be able to make any and all payments on time.

If you get credit you will get a credit score. The higher the number the better. If a bank feels your credit score is to low you could not be approved for loans in the future. That could mean not being able to buy a house or a brand new car.

Credit Cards: What You Need To Know

  • Credit cards are cards such as Visa, Mastercard, and Discover Card. When you get one you pay an annual fee of $15-$100
  • Not paying your credit card bill on time will result in you having to pay an interest rate of 0-29%
  • You can also max out your credit card by going over the credit limit and have to pay an over the limit fee or you could be declined

Smart Consumers

In order to stay safe while using a credit card I would suggest you treat it like a debit card. Keep a total of how much money you have that you can spend so that when the bill comes in at the end of the month you can pay it. You should always pay your bill on time not only to avoid the late fees, but also to make sure you maintain a good credit score. You do not want your credit score keeping you from doing important things in your life.