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Credit is a very complicated topic and to be able to understand it you should know the following vocabulary. Either before you begin or as you read please refer to this vocabulary page.
Four Ways to Pay
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A credit card is a form of payment made of a plastic material that can be used to buy items that are paid off at the end of the month. You don't have to carry cash, it's all in the card. How does the company make money? They rely on people messing up and not paying bills on time. If the monthly fee is paid late, interest will be added plus late fees.
Cashfuturama.wikia.com
Cash is a paper substance created by the government to be used as a form of trade. With the cash, you can purchase items. The bills, paper slips, are labeled with numbers that represent their values. Cash helps limit the items you buy because it tricks your brain into telling you how much money you have to spend and nothing more.
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Debit99bitcoins.com
A debit card is a form of payment that you can use to buy items with money that directly comes out of your debit account. Once you swipe the card, the money is immediately gone. It's like a credit card, but in order to be approved to buy items, a pin number is required to be entered.
Checkwww.godirect.gov
A check is a form of payment where one person uses this paper to take money out of the account and give it to someone. With a check, the person who is receiving the money can do it themselves. Once the original person fills out the paper, the receiver can take it to the bank.
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Major Credit Card BrandsThe four major credit card brands are Discover, Visa, MasterCard, and American Express. This means most places will accept these cards. You can tell which card is which by either the name being on front or the number the code starts with. MasterCard starts with the number 5, Visa 4, Discover 6, and American Express 3.
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buzzquake.com
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The Three C's of Credit
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CharacterLoaners may look at past payments and jobs. They want to know that you're responsible, reliable, and honest and will pay them back.
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johnrichardsjr.com
CapacityCapacity is the combination of attitude, knowledge, and responsibility that loaners will look at. It is your ability to pay off debt. Loaners want to know your current situation in which you could pay off debt.
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clipartfest.com
CapitalLoaners will look at the money you currently have and objects you own like houses, cars, and apartments, items of extreme value. Companies will want to know if you have items to use as collateral.
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Credit Score
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Credit score is VERY important! Especially when you're young. A credit score is a number that represents how reliable you are with your credit. Creditors will look at The Three C's of Credit, if you're paying your bills on time, if you're trying to get too many loans, etc. It's all incorporated into your credit score. So, why is it important? Creditors will look at this number when deciding to give you a loan. If you have a low credit score this usually means you're irresponsible or forgetful and they will not give you a loan. If you have a high credit score, this usually means you are responsible and reliable, and they will most likely give you a loan. Handling you money is especially important for younger people, because if they mess up, their credit score will drop.
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Pros and Cons of Credit
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ProsCredit Cards are an easy way to pay. They're easy to carry and keep track of. You can use them almost everywhere to buy almost anything. Plus, if stolen, you can freeze the card. You also have a backup plan in emergencies.
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ConsBy using a credit card, your brain may trick itself into using more money then you can pay off. You may feel like you have all the money in the world without even realizing it. Plus, you have to keep track of bills and pay them on time. If you don't pay, late fees and more interest will be added.
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Loans
A loan is when someone needs, or wants to make a purchase but does not have the money. They can go to a bank or a creditor to get the money. Later they have to pay it back plus interest if it is late. If it's late they must pay late fees.
Loan Sharks
A loan shark is an illegal creditor. Lets say you do something illegal like gamble. If you lose a lot of money and need more, no official creditors will loan you money. A loan shark will. For example, lets say you need 50,000 dollars. A loan shark will give it to you,but they'll want the money back plus interest a month or so later. If they ask for 75,000 dollars where will you get it from? What will you do? You can't go to the cops. You have gotten yourself into some trouble.
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www.moneywiseharingey.com
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If you haven't already visited my Vocabulary page, please do. I think it will help you better understand credit. :)