Credit is a financial tool that will help you pay for college, buy a vehicle
or own a home. When the time comes, your ability to get credit — and use it
wisely — can be affected by the way you manage your money now.
What Is Credit?
Credit is borrowing — when you buy something now with a promise to pay for it later.
Using credit costs money. You have to pay the amount you borrowed, plus interest
and sometimes fees. When credit is used, there is a creditor (the person, bank,
store or company who is owed money) and a debtor (the individual who owes it).
Establishing A Credit Reputation
When you become a bank customer, you begin building a reputation for using
credit. For example, using checking and savings accounts without overdrawing
them shows you can manage money well. This will give you a better chance of
getting a credit card, vehicle loan or home loan when you need it.
Once you begin using credit, you improve your credit reputation every time
you pay your bills on time. This is very important because employers, landlords,
insurance companies and other businesses will review your credit history as
they make decisions about you.
Your credit reputation is summarized in a credit report — a
month-by-month record of your interactions with banks and credit
card issuers. There is also a numerical summary (like a grade) of your credit
report. It is a three-digit credit score.
This credit score reflects the following.
- If you pay your bills on time.
- How much debt you have.
- How long you have used credit.
- How much new debt you have.
- What kinds of debt you have (credit cards, vehicle loans, home loans).
The higher your score, the better. A high score can make it easier to get loans,
find a place to live, obtain affordable insurance and even get the job you want.
Healthy Credit Habits
Credit is helpful, but it can be dangerous if you do not use it wisely.
You should talk with your parent or guardian to decide if you need credit.
If you apply for a credit card or loan, consider the following.
- Decide exactly how you will use it. Use credit for purchases you know you can repay each month.
- Pay bills on time and in full. Never skip a payment.
- Limit the number of credit cards you own. You probably do not need more than one.
- Know the terms and conditions of your credit card and loan(s).
If you have questions, ask the issuer to explain.
- Keep credit card and loan information in a safe place.
- Keep copies of sales slips and compare charges when your billing statements arrive.
Call the company immediately if you see a discrepancy.
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Basic Money Management
Basic Money Management
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