Credit is what you use to buy something when you don’t have the money for it. You borrow the money and usually pay it off over time. Interest rates, credit scores, and your credit history are important parts of financial literacy!
Be sure to think about how you will pay it back and what it will cost to borrow before you buy or sign up.
Credit can be a loan, an overdraft, a line of credit, or a credit card. It’s an agreement between you and a financial institution or a store. There will be terms like how much you borrow, and the cost to pay it off.
Read the fine print!
Interest is the cost to borrow money. If you have a credit card, it’ll be a percentage that you pay on the balance every month. Interest rates are decided by the lender (like Visa or MasterCard) and is above and beyond the cost of the item.
Interest rates depend on your credit history, and the lender. They range from 0% up to as high as 29.9%. Make sure you add the cost of interest to your purchase price before you decide to use credit.
When you take longer to pay off credit, your monthly interest fees (charges) grow!
Credit companies keep a record of your history when you get a loan or a credit card called your credit history. It’s made up of all your credit purchases, like loans, credit cards, phone plans, or monthly bills.
Credit history is a record of your payments. If they’re made on time, and with at least the minimum payment, you’ll have a good credit rating.
Your employers and number of housing moves will often show up on credit histories as well.
Your credit history impacts the interest rate that you’ll be given. It’s important to:
You can request a credit history report once a year from Equifax and TransUnion, the agencies that track credit histories. Once per year, you can access a free credit report.
If you think carefully about credit and debt, you’ll likely make good decisions about your financial future. Some loans are better than others, like a student loan which has low interest and longer term payment plans.
For small purchases, carefully consider your budget and save until you have enough money to meet your goal. Your credit will always follow you, so treat it with care!
