Using Credit Wisely

Kinga Kowalczyk

The Basics of Credit

For the promise of repayment in the future, you can purchase goods. This process is called credit. Using credit, you can purchase something now, and pay for it later.

There are multiple forms of credit, including, but not limited to, personal loans and credit cards. Personal loans can be received from the bank and used for various things such as a car loan. There are many different types of credit cards offered, and they are used to purchase things, even if you don’t have any money. Credit might sound great, but it is not free! When you use credit, you have to pay interest, or an annual percentage fee (APR). Interest is calculated using a certain percentage based on the amount of money you borrow.

To determine whether or not someone gets credit and how much of it, their creditworthiness is checked. The person who loans the money, the lender, will also check your credit report. Your credit report is created by the credit bureau, which collects information and has a record of every adult. Your credit report contains your credit history, and a credit score.

Vocabulary Watch

Credit Cards: What You Need to Know

A credit card is a way to purchase things with borrowed money. Whenever you purchase something, the amount is added to your balance. You then pay either the entire balance or a minimal amount per month, depending on the type of account you have. You can use credit cards almost everywhere - some places do not accept credit cards, but this doesn’t happen very often. The benefits of using credit cards is that you can purchase things even if you don’t have money, and some credit card companies offer rewards such as rebates or airline miles. The costs of owning a credit card are interest rates (APR), and possibly certain fees that credit card companies have. Thee fees include annual fees, penalty fees, and over-the-limit fees. Annual fees usually aren’t a concern because due to competition, they’ve been eliminated by most companies. Penalty fees could be paid when the balance is paid later than a certain date. Some credit card companies have a credit limit, where you aren’t allowed to spend more money than that limit. If you do, you could be charged an over-the-limit fee.

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

When using credit cards, you have to be careful to avoid falling into debt. When paying your monthly dues, don’t just pay the minimum because most of the minimum includes interest so you aren’t reducing your debt - pay an amount that will reduce your balance as quickly as possible. When choosing a credit card, research different ones and the various fees and the interest rate they have, and choose the cheapest one. You should also only use credit cards for emergencies. Try paying for things with cash because then you can physically see the money leaving you, and you will be able to control your spending.

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