By: Jessica Forth, Period 10
Section 1: The Basics of Credit
- The concept "Buy Now, Pay Later" is one way to explain credit. Your borrowing money in return for a pledge of future payment. When taking out a personal loan for maybe a new house, you are borrowed money and expected to pay that money back or else your credit will go down. Credit is not just given to everyone for everything, you must be reliable for paying your borrowings back.
- Credit can be given in the form of a personal loan or credit cards.
- Credit is not free, you pay APR or your Annual Percentage Rate. You must pay interest on your credit and this percent rate you pay varies from bank to bank.
- You must first show lenders your credit worthiness and there is a simple way to do this. The three C's of credit consist of three key terms to help determine your amount or ability. Capital is the value of your savings, investments and properties. This can be used to pay your loans off. Capacity is your ability to pay them. This includes your income and other significant expenses or debts. The final "C", Character, determine whether you as a person are financially responsible. Do you make your payments and bills on time? Are you holding a steady job? Are you a homeowner? You can get all this information from the Credit Bureau, which collects information on your credit and sells it. They know everything and give you a credit score. Your credit score reflects your credit worthiness. The higher the better! So pay your payments on time. To view your credit score and info you can file for a credit report once a year for free. Anything after one year will cost you. It is requested through lenders and provided by Credit Bureaus.
Section 2: Vocabulary Watch
- Credit Report- A Credit Report provides you with your credit information and your credit score. It is requested by lenders and provided by the Credit Bureau. You should get them when you apply for credit, once a year for free and after once a small fee, and if you suspect identity theft.
- Credit Bureau- The credit bureau has a record of every adult and knows if you have bounced a check and missed a payment. They know everything about your credit which allows them to give you a credit score.
- Credit Score- Your credit score reflects your creditworthiness or ability to pay. The higher your score the better! Making your payments on time is always a good thing to keep your score up. Avoid debts and missing payments.
Section 3: Credit Cards: What You Need to Know
- Credit cards are the same as "Buy Now, Pay Later..". They allows you to buy things and pay the amount back later. There are regular charge accounts that require you to pay the balance in full and there are revolving charge accounts that allow you to carry a balance from month to month. The APR or interest rate of a credit card varies from zero to twenty nine percent. If you pay the entire balance by the due date you do not have to pay interest. Credit cards have a credit limit or amount that you can spend using the card. This can get pricey if you do not control your spending.
- You can use a credit card basically anywhere. It is smart however, to only use it if you have to and pay cash if you can. You don't wanna be that guy/girl with all the credit card debt because you spent to much. You have to be smart with them.
- Credit cards can be both good and a pain in the butt. There are a lot of fees such as the over the limit fee, annual fee, and penalty fees. Over the limit fees are very costly as they charge about thirty dollars for every charge beyond your credit card limit. SO DON'T DO IT. Annual fees are a required amount you must pay in order to have the credit card. This ranges from fifteen to one hundred dollars. Penalty fees are extra money owed caused by late payments, over your credit limit, and returned payment. They can also result in a higher interest rate. Being careful with a credit card is important as your identity could be stolen. If you are responsible with your card you should have no problems. There are good things about having a credit card believe it or not. They come with incentives such as cash back, points, and airline miles, every card is different. They also are a good way to pay for something that you need in an emergency and have no cash for. If responsible with your card, they are a great way to build up credit.
Section 4: Smart Consumers: Don't Fall Into the Credit Card Trap
When getting a credit card choose wisely and go with the least expensive but with greater benefits. Avoid to many cards and pay with cash if you have if. Do not use the credit card just because, be responsible. Make all of your payments on time or else this could result in even more fees and penalties. Do not go over your credit card limit or this will also result in fees and possibly bankruptcy if you put yourself deep into debt..dun dun dun! Make sure that your credit card is secure and check your credit reports to make sure there is no identity theft taking place. Seek credit counseling if you need to for further instructions and help.