Be Careful with Credit

Use It Wisely

The Basics of Credit

What to know about credit

Credit can be defined as the ability to make purchases on items or services without having to pay for them right away. You are obviously expected to make any payments you make sometime in the future. Three types of credit exist: installment credit, resolving credit, and open credit. Installment credit is credit that you use to borrow money and promise to repay in equal amounts over a given period of time. Resolving credit is credit that allows you to borrow a specific amount of money continuously as long as you eventually pay it all back. Open credit is credit that requires all borrowed money to be payed back in full every month. Your credit score depends on your credit history based on how responsibly you use your credit. The credit bureau monitors how consumers use their credit to determine their credit score.

While credit can be very useful and come in handy more often than not, there are some costs associated with it. There is a discount fee charged by the credit card company as well as the up front cost. You will be charged a different amount of interest based on your credit score and your creditworthiness. Your creditworthiness is determined by the 3 C's: character, capacity, and capital. All of this information can be seen on your credit report. You can get credit as long as you are 18 years of age. You are able to receive a credit card which allows you to buy things with credit without having cash on hand. You get a lower interest rate and are able to use more credit the higher your score is. You are able to get loans from a credit lender for things such as school loans. You may also get more personal loans such as for a new car or computer.

Vocabulary Watch

APR: This stands for annual percentage rate and is the amount of money that you are paying over a set period of time typically on loans or credit.

Credit Score: Every person is given a credit score between 300(lowest) and 850(highest) that represents the creditworthiness of an individual based on how responsible they are with using credit.

Credit Card: Anyone of 18 years or older may get one. They allow the cardholder to pay for goods and services without cash on hand as long as they promise to pay it back later.

What to know about credit cards

A credit card is a card that is issued to anyone that wishes to own one if they are at least 18 years old. They let a person use credit to buy items as long as they promise to pay for all of it later with cash. Most credit cards come with an annual fee. This is one of the costs that come along with owning a credit card. All credit cards also come with a credit limit which is the maximum amount that a credit card company will let a cardholder take out at once on a card. Credit cards also come with an interest rate, also known as APR. This is the typically monthly or yearly payment that one must make to on their purchases and it will be lower if you have a good credit score. The benefits to credit cards are that you can use them almost anywhere. If you forget to bring enough cash along, you can most likely use your credit card instead. Also, most people would prefer bringing a credit card with them rather than $1000's of dollars. Some of the downsides to credit cards is that you may be subject to penalty fees if you are late in making your payments. You may also be presented with an over-the-limit fee which you will be charged for if your balance goes over your credit limit. Overall if credit cards are used responsibly they can be of great use.
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Stay safe while using credit cards

While it may seem amazing that you can make unlimited purchases on your new credit card, you will have to eventually pay all of that money back which leads us to a few tips to keep in mind when you own a credit card. Typically when making a purchase on your credit card you want to make sure that you have that much money in the bank or you will be able to make that much money by the time you need to pay back from the credit used which is typically a month. You don't want to have the false idea that credit is unlimited free money. You will most likely have to pay back more money than the item is worth although you will have a very long time to pay it all, sometimes years and years. Remember to use your credit card wisely should you choose to get one!
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By: Jory Dvorak Period 2