April 2022 Featured Topic: Credit

Credit is a huge part of the American economy. When used properly, credit can offer many benefits. However, if it is not used responsibly, it can lead to having a poor credit history which can result in mounting debt, the inability to get approved for a car, business or home loan, and the need to pay more for some expenses. Learn more through this quick lesson: Intro to Credit.

What’s Credit? 

Credit is money that is loaned to you. The loan can be short or long term. It can be given to you by a bank/financial institution or credit company. It is paid back, often with interest, over an agreed upon schedule, often through monthly payments over time. It essentially allows you to buy now and pay later. Credit can be given in the form of a loan or through credit cards. 

Are you interested in getting a credit card? Here are some things to consider:

  • If this is your first ever time getting a credit card, try getting one through your bank/credit union or department store. Secured credit cards are another choice. They are easy to get and a great way to start building credit. However, these cards require you to put down a payment as collateral.
  • What will you use it for? Depending on this reason, you may want to look for specific benefits or prioritize certain features like rewards, cash back perks, or longer grace periods!
  • What fees are associated with the card? Some credit cards have annual fees. Others have application fees. It’s important to be aware of the kinds of fees associated with a credit card while shopping around for the right credit card for you. 
  • Compare credit card offers to help you decide which one is right for you. There’s even websites out there that do the comparison for you! Check out https://www.creditcards.com/ or https://www.bankrate.com/. 
  • Every time you make a purchase, think about whether you will really be able to pay it off, in full, by the time your bill comes. If you can’t pay for it now, what is your plan to have the money to pay for it later?
  • Always make your payments by the due date on your bill! This will help you avoid paying interest and is the number one way to build a good credit history. 
  • If you can’t pay the entire amount due, always do your best to pay more than the minimum payment. Otherwise, it will take a very long time to pay off your debt and the amount you owe will continue to go up since interest will be added each month. 

Credit Score

Your credit score is a rating that is assigned to you based on your credit history. Your credit history can be found on your credit report, which details all of the credit you’ve taken out (credit cards, loans, mortgages, medical debt, etc.) and whether you pay your bills on time. The FICO score is the most commonly used credit score, but there are others and they all calculate the score differently. 

Credit scores range between 300 and 850. The higher the score, the better you look to lenders because it represents that you are a person who will repay their debt on time. It can also help you get lower interest rates on loans and qualify for housing. Some employers also check your credit as a way to see if you are responsible and dependable. 

It’s good to get into the habit of checking your credit report frequently to ensure there are no mistakes or suspicious activity isn’t suspicious activity going on or mistakes. Did you know that you can check your credit report for free once a year? Check out your credit report for free at http://www.annualcreditreport.com/. Set a reminder to check it on your birthday! 

Common mistakes that can hurt your credit score:

  • Having too many credit cards;
  • Opening too many new accounts/loans in a short amount of time;
  • Not checking your credit report for mistakes and errors;
  • Not notifying creditors when you move/change names;
  • Not using your full legal name on financial documents.

Tips to help improve your credit score

    • Make payments on time, every time. Missed payments count against you, even if you catch up the next month.
    • Keep your balance low in relation to available credit. A good rule of thumb is to keep your credit card at a 30% utilization rate or lower.
    • Pay off credit card debt instead of transferring it to other cards.
    • Always make more than the minimum payment.