What is Credit?
Credit is borrowed money you agree to pay back later. Lenders trust you based on your credit history.
- Credit cards: Borrow for purchases; must repay monthly.
- Loans: Larger sums for cars, school, or homes; repay with interest.
- Credit score: A number showing how reliable you are in repaying debt.
Credit Score Factors
- Payment history (35%): Pay bills on time.
- Credit utilization (30%): Use less than 30% of available credit.
- Length of credit history (15%): Longer is better.
- Mix of credit (10%): Cards, loans, mortgage.
- New credit (10%): Too many applications lower your score.
Types of Loans
- Student loans: Pay for education, repay after graduation.
- Auto loans: For buying vehicles.
- Mortgages: Long-term loans for houses.
- Personal loans: For general use; usually unsecured.
Tip: Always compare interest rates (APR) and fees.
Avoiding Debt Problems
- Pay at least the minimum balance each month.
- Keep credit card balances low.
- Don’t borrow more than you can repay comfortably.
- Check credit reports yearly for errors.