You’ll hear a lot of talk—most of it cautionary—about credit: Check your credit report! You need to have good credit.
So what is credit? Credit is the balance in a person's favor in an account. A more formal definition is: Consumer Credit is credit granted to an individual especially to finance the purchase of consumer goods or to defray personal expenses
So let’s say you have a credit card that allows you to charge up to $1,500. Does that mean you have $1,500? No.
What it means is this: Your creditor is loaning you $1,500. You must pay the money back. If you pay it back on time, then you don’t pay any interest. Interest is a fee for borrowing the money.
Keep this in mind: Creditors are in the business to make money. They are not in the business to give you money.
But there’s more to consider, including:
- How do you build credit?
- Should you get a credit card?
- Where exactly do loans fit into the picture?
- Why is good credit so important?
- What precautions should you take?
There are some basic credit rules that you should follow:
- You must pay what you owe.
- Keep track of how much you spend.
- Save your receipts and compare them with your monthly statement.
- Never lend your credit card to anyone.
- Owing more than you can repay can damage your credit rating.
- Pay your bills on time—and in full if you can. Otherwise you must pay interest on the amount that you don’t pay on time.
