By: Lupe Hernandez

Section 1: The basics of credit

What is credit?

The ability to obtain goods or services before payment, based on the trust that payment will be made in the future. A credit card is used to pay in stores and at the end of the month you have to pay it back to the bank or the amount keeps going up.

What are forms of credit?

Installment Credit- you use to borrow money and promise to repay in equal amounts over a specific period of time.

Revolving Credit- allows you to borrow a pre-established amount repeatedly as long as your account is in good standing. You repay the amount borrowed in full or make a partial payment that is subject to interest and/or fees.

Open Credit- requires that all money borrowed must be repaid in full every month.

What Costs are associated with credit?

Interests- fee paid by borrower of assets to the owner as a form of compensation for the use of the assets.

Annual fees are applicable. It can be low as $5 as high as $100.

What determines if someone gets credit and how much they get?

To get credit you must demonstrate your creditworthiness. Lenders judge character, capacity, and capital.

Character- Sense of financial responsibility.


-Steady job

-Residence (Long Term)

-Credit History

Capacity- Financial ability to repay the loan.

-High enough income

-Major expenses and debt

Capital- Values of what you own

-Savings, Investments, property

-use capital to pay if needed.

The credit bureau has a record of every adult and assigns the credit rating.

The score is between 300 &850. The higher the better.

Effects on scores

-On time payments

-Low debt

-Long History

-Limited # of credit cards

To get personal loans from a bank or someone you must have good credit. A personal loan is money lend to you that you must pay a certain amount each month with interest. The better credit you have the less interest you get and the less you pay a month.

Credit Cards: What you need to know.

What is a credit card?

A plastic card issued by a bank, business, etc., for the purchase of goods or services on credit. The credit card has a credit limit in which you can only use a certain amount on it. If you go over the limit you get a fee and it is called Over the limit fee.

At the end of the month you get a bill with some interest rates on the money you "borrowed from them". If you fail to pay on time you get penalty fees. In penalty fees your charges goes up every time you fail to pay.

Where can you use credit cards?

you can use it in any store where they offer that option. They usually ask you: Credit, debit or cash?

You should use credit when it's big important stuff like buying a TV or washing machine. You should not really use it when you are buying groceries.

What are the benefits and costs of using a credit card?

Emergency spending is one of several benefits. Credit cards also allow consumers to be more flexible with their cash. Credit cards can also help consumers stretch their monthly income. Another big advantage of carrying a credit card is convenience. Credit cards are physically easier to carry around than a checkbook. And most people don't want to carry large amounts of cash around. Charging even small items to a credit card allows a consumer to bypass stops at an ATM and avoid paying any fees associated with the ATM. Credit cards are also good when you're traveling in a foreign country and you don't want to have to carry around foreign currency.

Smart Consumers: Don't fall Into the Credit Card Trap

Use a credit card to build a credit rating and make your finances convenient to track, not to purchase things you cannot truly afford. Pay your balance in full every single month.

Pick a credit card based on interest rates and other financial interests, not pretty display, sign-up freebie, or cute credit card company employee. Any information you could want about potential cards is available on the websites of the companies offering them. Look for a card without an annual fee, the lowest interest rate you can find, and a modest limit—that way, even if you go on a drunken eBay spree, you won’t ruin your finances forever. On the same page, limit yourself to a single card. Until you’re making money at a full-time career, there’s just no reason for multiple cards.

• Do not take out cash advances on your credit card. The fees for doing so are high and the overall benefit is low. If you don’t have the money, you don’t have the money.

• Read every single, boring word the credit card company sends you. Assume that the higher the rate hike or transaction fee, the tinier the print! Credit card companies change terms all the time, and they don’t need your permission. Don’t let them slip anything past you.

• Keep an emergency fund. If you can keep $1000 or at least several hundred aside for any kind of true emergency, you won’t risk going into debt when one comes along.

• Don’t ever—and I meant EVER—let a friend use your credit card. It doesn’t matter how good of a friend they are, how much your trust them, or how minor a purchase they want to make. Down that road lies ruin, and no credit card company will have sympathy for, “my friend promised to pay me back!” It’s 100% on you. You can, however, share what you’ve learned about credit cards from researching the best choice for you to help your friend apply for their own.

If you end up getting into trouble despite your best intentions, do yourself a favor and cancel your card. Cut it up and throw away each piece in a different garbage can. A bit of bad credit is better than a lot of bad credit. Admit you aren’t ready for the responsibility and try again after college. And just remember…there’s no such thing as free money!