Credit and You

By: Mike Bojarski

The Basic of Credit

There are many questions that are frequently asked when talking about credit. Here are the answer to top four question asked.

What is credit?

Credit is money that is given to you by a lender that needs to be repaid by a certain period of time usually with interest added. Credit can be a powerful tool if used correctly or it can bring you a lot of trouble if used wrong.

What are the forms of credit?

There are many types of credit. The most common types of credit are personal loans and credit cards. Credit Cards are a good way to start establishing your credit score, if you are able to pay it off on a regular basis. There are special types of credit cards for individuals who can't trust themselves with a high limit or do not make enough income on a regular basis, like a student. For theses situation a low limit credit card or a student credit card is perfect.

What costs are associated with credit?

There can be many costs that are associated with credit, most of these cost come into a factor until you miss a payment. The main costs that are associated would be fees, like late fees, over limit fees, annual fee. Also, interest is a factor, most APR's are low or even 0% if you can pay your payment off in a certain amount of time. If you miss a payment or go over a certain planed payment plan then your APR may increase. All ways read the fine print before accepting your credit.

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

There are four basic areas a lender will look into you when assessing if you can receive the credit and how much. The four areas are known as the four C's.

1. Assessing your character. To see if you are trustworthy and can repay your debt.
2. Capacity - capability to repay the debt.
3. Creditworthiness - your history on your payments to see how you past debt was.
4. Collateral - an item of value that can be repossessed if you can't pay your debt.

Also they look into your credit score, which is a numerical number on whats in your credit report. The higher your credit score is the better it is; credit scores range from 300 to 850.

Vocabulary Watch

Here are some vocabulary words associated with credit:

Credit Bureau - This is the agency that all credit history is located and reported to. Your credit information is stored here for many years.

APR - Annual Percentage Rate, this is your interest rate for the entire year.

Lender - This is a company that you borrow money from. For example, Master Card.

Personal Loans - Theses are loans for personal items like for a car, home, or school.

Credit Cards; What You Need to Know

There are many questions that are frequently asked when talking about credit cards. Here are the answer to top three question asked.

What is a credit card?

A credit card is a plastic card that is connected to your credit account.

Where can you use credit cards?

The use of credit cards have become heavily popularized. Credit cards can be used in almost any place from online shopping to stores and even used to pay through phone. Most stores tell you if credit cards are not accepted; if no signs tell you the limitation on credit cards then assume that the store accepts all credit cards.

What are the benefits and costs of using credit cards?

There are many benefits and costs of using a credit card. Credit cards allow you to borrow money for an item that you can't yet afford but you can pay off monthly for it. At the same time there may be fees that apply to it. Most credit cards have an annual fee which you pay once a year to use their service. Also their are penalty fees, over the limit fees, and the interest rate. Most of these fees don't apply until you go above your credit limit.

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

Here are some tips on how to stay away from the dark side of credit:

Sign your card when you get it, don’t share credit info with others, avoid phishing websites, secured WiFi connection, Don't max out, keep track of what you charge, always pay on time.