Credit 101

By: Yulisa Baez

Basics of Credit

What is it?

Credit is an privilege where you can borrow money but in return you need to pay back in the future. Future pay back includes interest. Interest is called APR of Annual Percent Rate, it's easier to give an example:
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Benefits and Costs

Credit has very good benefits but on the other hand it has hefty costs if you aren't careful.


Benefits:


  • Buying more items
  • More items = more jobs to make items
  • Help build up good credit history
  • Security when making purchases
  • Provides Financial Records

Costs:

  • People tends to overspend
  • Paying Interest (APR)
  • Late Fees
  • Fall into Heavy Debt
  • Having bad credit history

Types of Credit and How to get it

The types of credit is based off of two categories:
  • Personal Loans

Loans are typical in uses of credit, loans are given to you by lenders at either a bank or credit union. You usually pay off loan in installments every month. There are many varieties of loans, the most common are:

There is also Credit Cards, but that is in the next section. Now to be able to apply for credit the lenders or credit cars companies need to know that YOU are trustworthy or have the creditworthiness. Lenders would look to see that you have the "3 C's of Credit", which are:


  • Capital

    • Value of what you own

    • Savings, investments, property

    • Use capital to pay loan if needed

  • Capacity

    • Financial ability to repay loan

    • High enough income

    • Major expenses & debt

  • Character

    • Sense of financial responsibility

    • Dependability

      • Steady job

      • Residence (long term)

    • Credit history

      • Bills on time?


To get all this info you would get it from the Credit Bureau, they collect information on consumers' credit for credit card companies and financial institutions. The information overall is called a Credit Report. In the report it has your credit info and it shows you your Credit Score, or a score between 300 & 850 (aka FICO score). When you get your credit score the higher it is the better.

Credit Cars: What You Need to Know

What is it?

A credit card is a plastic card given by a bank or business, used to buy items and then pay them later. Instead of using loans, consumers can pay with credit cards as easy way to make a purchase with all sorts of items. Credit cards have incentives, every time you use them (depends on the card) you can get airline miles, cashback on purchases, or points. Although it depends on your specific card you will have a credit limit. What this means is that the limit is the maximum amount of what you can borrow without penalties, but you should be borrowing more than you can payback.

Costs of Credit

There are some fees and costs that are required for you to take for you to be able to make purchases with a credit card:
  • Annual Fees: Required amount of money you need to pay annually
  • Interest (APR): Annual Interest Rate, the proportion of a loan that is charged as interest to the borrower, you pay an amount a month


Or sometimes these other fees come up to show penalties if you aren't careful with the card:

  • Over-The-Limit Fees: Amount charged, you go over the credit limit
  • Late Fees: Amount charged if the payment is late
  • Penalty Fees: Additional fee due to late payment, over credit limit, returned payment, etc., can increase interest rate

Shopping for Credit: Comparisons

Smart Consumers: Tips to For Using Credit Wisely

Tips to Remember

In the following are tips to help you when dealing with credit:


  • Avoid too many cards
  • Choose Card Wisely (least expensive, more benefits)
  • READ before you sign
  • Don't miss payments


Just remember having credit is a good thing but make sure you are always informed and know the consequences, that's why credit is a privilege everyone in American can enjoy!

Sources

Advantages and Disadvantages

Discover It Card

Advantages

  • Great Customer Service
  • No Foreign Transaction Fee

Disadvantages

  • Isn't Available In A Lot of Countries
  • Watch out for 3% Balance Transfer



Bank Americard

Advantages

  • $0 Liability Guarantee, so you're not responsible for any fraudulent charges made on your account
  • Perfect for a simple credit card

Disadvantages

  • Foreign Transaction Fees
  • No rewards program