Credit: The Necessary Evil!
What is credit? The most important thing to remember is that credit is not your money! Credit is someone else’s money that you are just borrowing hopefully very temporarily. Unfortunately in order to build a good credit rating that will allow you to buy larger items like a car or a house you must utilize different types of credit. By developing a history of paying back the money that you borrow on credit quickly you are demonstrating you can be trusted with other peoples money.
Types of Credit: Credit comes in many different forms. It may be a credit card or a student loan. Paying your car insurance monthly or making payments on furniture. All of these payments and more are reported to credit bureaus which track and record your credit rating. Other lenders then view these ratings to determine how likely you are to repay them.
Cost of Credit: When you borrow money on credit you are charged something called an interest rate. Interest is what businesses charge you for using their money. This rate varies depending on who you borrow the money from and the amount of money you have borrowed. The rate could be as high as 25% for some credit cards and as low as 2.5% on a house mortgage.
Repaying your credit: In most cases the amount you pay and how long it will take you to you to repay your loans is set. However in the case of credit cards there is no set date for repaying them. There is a minimum payment required but it is so low that it would take a long time to pay it off and you would likely pay more money back then you originally borrowed. Never put more money on your credit cards then you can pay off before the end of the month. Miss even a single payment and your interest rate climbs quickly making it even harder to repay the money on your credit card.
Credit is a necessary evil. Used properly it is a tool that allows you to buy items you could not afford any other way. Used in the wrong way it can be a weight that eventually drowns you.
Doing Life Right 