By Keziah Paz

The Basics of Credit.

Credit is the ability to borrow money in return for a promise of future payment. Another way to look at it is, “Buy now...Pay later.” To get credit, you must demonstrate your creditworthiness, which is your reliability to pay back a loan. Lender judge creditworthiness by 3 factors: Character, Capacity, and Capital. Character can be base on the following; Sense of financial responsibility, dependability, steady job, residence (long term), and credit history. Capacity are base on financial ability to repay loan, high enough income, and major expenses and debt. Capital are base on value of what you own, savings, investments, property, and use capital to pay loan if needed. This information comes from Loan Application or the Credit Bureau. In your loan application is under you assets (capital), income, and liabilities (debts). In the Credit Bureau, they collect info on consumers' credit and sells it.

Vocabulary Watch

Personal Loans- a loan that establishes consumer credit that is granted for personal use; usually unsecured and based on the borrower's integrity.

Credit Score- is a number representing the creditworthiness of a person, the likelihood that person will pay his/ her debts.

Credit Report- a negative record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy.

Credit Cards: What You Need to Know

Common Credit cards are VISA, MasterCard, Discover, and AMEX. Some incetives to credit cards are the cash back, points, and airline miles. Credit Cards have regular charge accounts and must pay the balance in full, an example would be American Express. Some credits cards are revolving charge accounts. The can carry balance from month to month; an example would be a Visa or MasterCard.

Establishing credit now will allow you to use credit easily in the future. If possible, start at 18 and start small. For example get store credit card, which are easier to get approved.

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

Credit cards have fees that you have to pay: Over-the-limit, late fees, and penalty fees. Penalty fee can result in an increase of interest rates. So make sure to make all credit card payments on time to avoid fees and to not overspend on you credit card if you can't pay back those items. One should also pay the credit card balance in full, and should avoid minimum payments. Credit card information are also valuable, as there is high potential for Credit Card Fraud. Someone can get access to your account and ruin your credit history.