How do I use credit?

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What is the difference between credit and debit?

Credit is the ability to buy an item or service with a promise to pay at a later date. Debit is using current funds to buy that item or service.


Credit cards

Know what to watch out for:

  • Credit limit – maximum amount that can be charged
  • Credit Available – remaining credit when the current balance is subtracted from the credit limit
  • Interest rate – watch out for initial rates that will increase after a certain period of time
  • APR – annual percentage rate and a good way to compare lenders or loans
  • Fees – annual fees, transfer fees, finances charges, late fees or over the limit fees can all be charged by the lender
  • Minimum payment – the minimum amount of the next payment
  • Payment due date – the date the next payment is due

The CollegeBoard offers tips on Credit Card SMARTS.


Credit report

A report compiled by one of three major credit agencies, Experian, Equifax, or Trans Union, also known as credit bureaus. Your credit report will list organizations with which you have had some sort of financial transaction.

  • The bank where you have a checking or savings account
  • The lender for your home or car loan
  • The bank that issued your credit card
  • Any organization you owe money to

The report for each of the three credit agencies could vary depending on which agency your creditor reports to.

The CollegeBoard offers tips for Keeping on Top of Your Credit Report.


Credit score

As a result of all the financial transactions you take part in, each credit agency will look at the activity on your account. You are assessed on the amount of credit you have available to use, the amount of credit you have used so far, and how well you repay your debts. This number is called your credit score.

Your credit score is used to determine if a bank wants to loan you money and determines the interest a bank charges you if you are able to borrow. It can range from 300 to 850. The higher your credit score, the better risk you are as a borrower and the better loan terms you could receive.

There are ways to improve your credit score over time:

  • Pay your bills on time
  • Reduce your credit card balances
  • Do not apply for all credit cards you are offered
  • Report any incorrect information to all three credit agencies

 

 faTV – Important Financial Concepts and Terms


 

 faTV – Credit Cards


 

 faTV – Credit Scoring