Monday, October 25, 2021
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In today's world, using credit is integrated into everyday life. From renting a car to reserving an airline ticket or hotel room, credit cards have become a necessary convenience. However, using credit wisely is critical to building a solid credit history and maintaining fiscal fitness.
What is Credit
Being out on your own can be fun and exciting, but it also means taking on new financial responsibilities. The decisions you make now about how you manage your finances and borrow money will affect you in the future—for better or worse.
Did you know that there are companies that keep track of whether you pay your debts and if you make payments on time? Then these companies make this information available in the form of a credit report and score.
A bad credit history can haunt you for a long time—seven years or more. That’s why the best thing to do is learn how to maintain good credit before there’s a problem. While this might seem complicated at first, it gets easier once you understand the basics of credit and how it works.
Credit is more than just a plastic card you use to buy things — it is your financial trustworthiness.
Good credit means that your history of payments, employment and salary make you a good candidate for a loan, and creditors—those who lend money or services—will be more willing to work with you. Having good credit usually translates into lower payments and more ease in borrowing money.
Bad credit, however, can be a big problem. It usually results from making payments late or borrowing too much money, and it means that you might have trouble getting a car loan, a credit card, a place to live and, sometimes, a job.
Types and Sources of Credit
Here are the most common credit types:
  • Single-Payment Credit
    Items and services are paid for in a single payment, within a given time period, after the purchase. Interest is usually not charged.
    Sources: Utility companies, medical services, some retail businesses.
  • Installment Credit
    Merchandise and services are paid for in two or more regularly scheduled payments of a set amount. Interest is included. Some retail businesses, such as car and appliance dealers Money may also be loaned for a special purpose, with the consumer agreeing to repay the debt in two or more regularly scheduled payments.
    Sources: Commercial banks, Consumer finance companies, Credit Unions
    Examples: Car loans, furniture and appliances financing, etc.
  • Revolving Credit
    Many items can be bought using this plan as long as the total amount does not go over the credit user’s assigned dollar limit. Repayment is made at regular time intervals for any amount at or above the minimum required amount. Interest is charged on the remaining balance.
    Sources: Retail stores, financial institutions that issue credit cards (Banks, Credit Unions, etc.)
    Examples: Major credit cards (Visa, MasterCard, American Express, Discover), Retail Stores credit cards (JC Penney, Target, Sears, etc.)