Credit

Everything you need to know

What is credit? How does it work?

It is the ability to barrow money from the bank up front to buy daily essentials, with the promise to make payments every month. This system can be referred to as "Buy now, Pay later".

What are the forms of credit?

Installment Credit - basic form, barrow money and promise to pay in equal amounts each month.

Revolving Credit - Barrow a pre-established amount repeatedly as long as your account is in good standing.

Open Credit - This type of credit requires that all money borrowed must be repaid in full each month.

What is the cost of using credit?

Credit is not free, banks would not offer this service if it costed them money in the long run. You must pay interest on what ever you have taken out.

What determines The creditworthiness of an individual

Your past habits with making payments will determine your approval chances with a loan or credit card.

Section 2

Vocabulary

Interest - The percentage of a sum of money charged for its use.

Creditworthiness - Trustworthiness with money as based on a persons credit history.

Lender - An organization or person that lends money.

Section 3

What is a credit card? - A plastic card issued by a bank or business, for the purchase of goods or services on credit.

Where can you use a credit card? - any business that offers goods or services, swiped through a machine to charge the account.

What are the benefits of using a credit card? - includes cash back credit cards, frequent flyer miles, and reward credit usage. A down side is paying all the interest each month.

Vocabulary

Annual fees - A yearly fee charged by credit grantors for the privilege of using a credit card.

Credit limit - A credit limit is the maximum amount of credit that a financial institution or other lender will extend to a debtor.

Interest rate (APR) - the percentage of a sum of money charged for its use.

Section 4

There are many ways to fall into bad credit or into debt, but the safest way is to look for the best interest rates and only use your credit on things you really need. Wildly spending money off of your credit to purchase what ever you want is not a good idea, because the interest will pile up. You may find yourself in a tight situation at the end of the month if you do not keep tabs on your spending.