SELECT YOUR LANGUAGE

Credit is a loan of money that you can access immediately, with the intention to pay it back later with interest.  The interest rate is determined by the credit lender and is based on your creditworthiness.  Your creditworthiness is judged by your current payment history and ability to repay the credit line.   Perfect credit is considered having a credit score of 850.  The credit score ranges from 300 to 850.  If you are delinquent in paying your bills and what you owe, this will decrease your credit score.   If you have more debt than income, this will also decrease your credit score. 

You have to be mindful of how you use credit.  You want to make sure that you get a good interest rate when using credit.  When you have a high credit score, it is easier to get a good interest rate.  The interest rate increases, when your credit score decreases.  

 

It can be easy to get into credit debt, when you do not track your spending habits and pay your bills on time.  Credit should still be viewed as money, because you do have to pay it back.  Don’t overspend using credit, if you know you struggle with paying your bills on time.  Track your spending habits and pay close attention to your billing statements, so you know how much money you are spending when using credit.  Credit is good to use, when you don’t have the money in that moment, but try not to overuse it, because you will need to have the money when the credit bill is due.

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Many view credit as having financial power, because it helps to fulfill a financial need immediately.  However, it is a loan that you will have to repay.  People who do not have trouble paying their bills are usually better with using credit.  People who have trouble paying bills usually find themselves in credit card debt, because credit too is another bill.  Having good credit gives you an advantage when you want to borrow money for large purchases, like a home, business, or car.  So, if you use credit cards, make sure you pay them on time, along with your other bills.  Don’t overuse credit to purchase things that you want, use credit for things that you need, especially if you are already struggling financially.  If you are good with managing your money, credit can help you build a good credit history.

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When considering using credit there are secured and unsecured credit cards.  Secured credit cards are backed by a deposit that the issuing bank requires you to make when opening up the credit account, the credit limit is set to the amount of your deposit.  The amount can increase by depositing more money.  Secured credit cards are usually offered to people with poor credit or a limited credit history.    Unsecured credit cards are not backed by a deposit and the credit card limit is determined by your credit history and require you to have fair to good credit scores (ranging from 580-740).  Unsecured credit cards have higher spending limits and some even offer rewards for usage (like cash back incentives). 

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Keeping a low credit utilization ratio (low spending) can impact your credit score.  It is suggested to keep your credit utilization rate around 30% to get a positive credit score rating.  It is best that before you start applying for credit cards or over utilizing them, make sure that you understand your ability to repay the debt, so that you do not mess up your credit.  Always make on time payments, if you cannot, try to use your own debit card that withdraws the cash directly from your checking account.

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By Jason Torrents