What is Credit?

Bill Kralis


Credit is the ability to borrow money from a bank or a person and be able to pay them back in the future with interest. For example, if somebody gets a loan from a bank for $5000 with a 5% interest rate per year. You would have to pay back the $5000 and an extra $250 for the interest.

Many other things come along with a credit card. A credit score is a number a person gets that represents a persons creditworthiness. A person wants to have a higher credit score. To get a higher credit score, a person must make sure to pay back loan payments on time. Their is also a credit bureau which is a agency that collects a debtors payments.

Types of Credit

Loans are one form on credit. The loaners, usually banks, will give you a certain amount of money and you will have to pay it back when you have they money too but with a little bit of interest for the bank to make money.

Having a credit card is also another way. Even if you don't have money in your account, you can charge things with your credit card back, but with interest. Each credit card has a limit and you are not allowed to go over that limit. If you go over you will have to pay penalty fees or over the limit fees. You also have to pay an annual fee every year for owning the credit card.

Being a Smart Creditor

To be a smart creditor, there are a few things a person needs to remember

  • don't go over the limit using a credit card
  • don't just pay minimum on payments
  • don't marry someone with bad credit (my moms advice)
  • if not necessary, don't use credit!