How It Works

The Basics Of Credit

What is credit?

Credit is the ability to borrow money in return for a promise of future payment.

What are forms of credit?

It can be in the form of personal loans or credit card usage.

What are the cost associated with credit?

Credit is not free one must pay interest (APR).

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

Creditworthiness determines if someone gets credit. One gets this information from the Credit Bureau. The Credit Bureau has every adults credit report and credit scores. This is taken into consideration by lenders when one applies for a loan or credit.

Vocabulary Watch

Creditworthiness - is ones reliability to pay back a loan. It consists of the many things lenders use to consider you for a loan or credit. They check your capital, capacity, and character.

Credit Bureau - collects information on consumers. They record every bounced check, missed payment, and bankruptcy. They then assign credit rating (score) that number reflects ones creditworthiness.

Interest (APR) - is annual percent rate on money borrowed like loan or credit card. APR can sometimes be based on your income and credit score.

Credit Cards

What you need to know

What is a credit card?

A credit card is a plastic card issued by ones bank approved to buy goods and services on credit.

Where can you use credit cards?

Credit cards can be used on anything where they are accepted.

What are the benefits and costs of using credit cards?

Some benefits are cash back, points, and airline miles. There is an annual fee that one must pay, ranging from $15- $100. There is also interest (APR) ranging from 0% - 29% only if the entire balance is paid after the due date. Credit cards also have a credit limit and fees. There are 3 types of fees; over-the-limit, late fee, and penalty fees.

Smart Consumers

Don't fall into credit card trap

One should control credit card cost to avoid falling into the trap (debt). Choose a credit card that is inexpensive and has great benefits. Credit card balance should be paid in full and not in the minimum amount. One should avoid having to many card, one should use cash, and make payments on time. A loan should be considered oppose to a credit card since they have a lower interest rate.