Credit is important because it helps you get what you need, when you need it—making it a reliable, useful and convenient financial resource.
But it’s critical that you understand how to manage credit. Whether you’re financing a new car, paying for college, buying a home or funding your dream vacation, there are specific steps you can take so you don’t join the growing number of consumers who borrow on credit without a plan to responsibly pay it off.
So how can you avoid falling into credit card debt? The key is to understand what credit is, how to manage it, and how to establish and maintain good credit.
What is credit: Credit is money you borrow to purchase goods and services without upfront cash.
How does credit work: First, you apply for a line of credit by filling out an application (could be at a mall clothing shop or an online retailer, for example). Next, if you're approved, you're able to borrow a predetermined amount of money - say, up to $500 or $5000. This means you've been funded credit by a bank or other financial institution that expects you to pay them back. Now you're responsible for paying off the balance of the loan, usually in monthly installments.
What is credit: Credit is money you borrow to purchase goods and services without upfront cash.
How does credit work: First, you apply for a line of credit by filling out an application (could be at a mall clothing shop or an online retailer, for example). Next, if you're approved, you're able to borrow a predetermined amount of money - say, up to $500 or $5000. This means you've been funded credit by a bank or other financial institution that expects you to pay them back. Now you're responsible for paying off the balance of the loan, usually in monthly installments.
When you have a strong credit report, you’ll have access to more borrowing options at lower interest rates. Plus, potential employers, landlords and insurance companies often reference your credit history when determining your candidacy for jobs, rental agreements and premiums. A high credit score and a solid track record of on-time payments will position you for better opportunities down the road.
So now you know why it's important to monitor your credit report and make your payments on time. Credit can be your friend – when you treat it with respect and give it the attention it deserves.
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