Being Smart With Your Money
The Basics of Credit
In order to get any of the two types of credit, you have to prove your creditworthiness, meaning your reliability to repay your loans. Lenders, those that are loaning the money, judge this using three basic factors: character, capacity, and capital. We’ll explore these factors in detail later.
The lenders find this information using the Credit Bureau, which finds and collects information on the consumers’ credit and sells it. The Credit Bureau has a record of every adult and using that information, assigns a credit score or rating. This number reflects your creditworthiness by assessing your ability to pay bills on time. The score is between 300-850 and the higher the score the more money you are allowed to get.
All of this information, including the score, is provided by the Credit Bureau and requested by the lenders through a credit report that sums up all the information needed to see if you are able to get credit.
However, once you do get credit, it comes with a cost, meaning interest (APR). This fee can range from 0-29%.
Capital is the value of what you own, for example: your savings, investments and property. You can use capital to pay a loan if it is necessary.
Capacity is your financial ability to repay loans, how high your income is, and your major expenses and debts.
Character is your sense of financial responsibility. What is your dependability? Do you have a steady job? Do you have a long term residence? Also, what is your credit history? Do you pay your bills on time?
Credit Cards: What YOU Need To Know
A credit card is a card that’s issued by a bank or business, allowing the holder to purchase goods or services on credit, and repay the money spent later.
They can be used in a variety of different places like stores, airports etc. in order to pay for things that consumers might not have enough money to get otherwise.
However, having a credit card also means getting the costs that come with it. For example, the annual fees, which range from $15-$100 that are mandatory in order to have and keep your credit card. Another cost comes after you use the money from your loan or credit card, called interest rate (Annual Percentage Rate). That cost ranges from 0-29%, depending on the amount of money used, but if you pay off the entire balance by the set due date, there is no interest. You also can’t go spending as much money as you want. That’s why there are credit limits. Credit limits are the maximum amount you can spend on your credit card. If you go over the limit, you either pay a penalty fee or are declined. You then have to pay around $30 for each charge that exceeds your limit. Also known as an over the limit fee. Penalty fees, however, are not only additional fees for when you go over the credit limit. They are also for, late payment, return payment etc.
Now, credit cards also come with a lot of benefits.
Credit cards are great if you need to buy something immediately and you don't have any other option to get it. Especially in emergencies, for example, if something goes wrong with your car. Sometimes that's not something you can foresee, so if it needs to get repaired immediately and you don't have enough money at the time, credit is great. Credit cards are also great for budgeting since your credit card statement gives you a list of your monthly expenses. Credit cards are also convenient because more stores accept credit than checks. Also, depending on your card, you get benefits with each use.
Smart Consumers: Don't Fall Into the Credit Card Trap
- Pay your credit card payment in full
- Choose your card wisely (keep in mind the costs, but also the benefits)
- Avoid too many cards
- Read what you're getting into
- Be careful of identity theft
- Seek credit counseling if needed
- BEWARE OF BANKRUPTCY