by Gisselle Reyes
Basics of Credit
Credit is the ability of a consumer to obtain goods or services before payment, based on the trust that the payment will be made in the future. There are different types of credit including: secured, unsecured, revolving, and installment.
Secured credit is when the consumer guarantees that the credit will be paid, and if the agreement is broken, the lender gets a lien asset. Unsecured credit is when you simply give your word that you will repay what was borrowed. Revolving Credit is when you have a set limit provided for you that you can access whenever you want, and you must pay the lender a minimum amount on your balance. Installment is credit when a consumer borrows a certain amount of money and repays it by making a series of fixed payments.
Some benefits associated with good credit are the ability to buy needed items at any given moment, you do not have to carry cash, you have a good record of your purchases, it is more convenient, and it consolidates your bills into one payment. Also, if you want to check how much credit you have, you just check a credit report. The Credit Bureau is a company that collects information related to the credit ratings of individuals and makes it available to credit card companies; so other people can run your credit score too. However, some negatives are that every time you run your credit score, your credit score goes down. Also, there is a set amount of interest (APR) that you have to be comfortable with when signing up for a specific credit card.
Some factors that determine your creditworthiness are personal income, paying your bills on time, age, low debt, personal loans, payment history, number of credit cards, credit score, and how long you’ve had credit cards.
Credit Cards: What You Need To Know
A Credit Card is a small plastic card issued by a bank, business, etc. that allows the owner to purchase goods or services on credit. However, there are annual fees that you have to pay back to the company and also credit limits so you can not just buy stuff endlessly. On top of that, there is an interest rate (APR) that describes the annual interest, not just a monthly interest rate. Also, you must use your card responsibly and pay the bill on time or else there are penalty fees, which are charged on top of the original bill after a grace period. Also, if you surpass your credit limit, there are over-the-limit fees that a card issuer can not charge unless you have opted in and signed a disclosure agreement.
You can use credit cards almost anywhere. However, a few things you can not buy with credit are: casino chips, marijuana, mortgage debt, student loans debt, lottery tickets, pronography, and anything under $10. (According to marketwatch.com).
The benefits of using credit cards is that they are more convenient and you do not need to have cash on you. Also, it keeps good records to keep track of your expenses. Credit card companies often offer you perks as well for being with them. And finally, you can build a higher credit score which can help you buy big items in the future, such as a house or car. However, some disadvantages to using credit cards is that it makes it very easy to over spend and possibly deepening your debt. Also there might be high, unexpected fees if you miss a payment.
Shopping For Credit
Smart Consumers: Don't Fall Into the Credit Card Trap
- Make the switch to EMV Chip Cards to avoid fraud liability.
- Be vigilant and conscientious about fraud. If something doesn't look right, don't ignore it.
- Freeze your credit to make it difficult for identity theft.
- Monitor your credit reports and statements.
- Pay off any debt as soon as possible.
- Decide on a rewards card that suits your personality. (ex. if you're a flier, get a travel rewards card)
- May payments on time
- Use the card regularly
- Learn about other card benefits to make an educated decision.