Taking Care with Credit

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:

1. You must pay what you owe.
2. Keep track of how much you spend.
3. Save your receipts and compare them with your monthly statement.
4. Never lend your credit card to anyone.
5. Owing more than you can repay can damage your credit rating.
6. 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.

Click here for more tips on handling your credit.