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SUNDAY, APRIL 3, 2016 |
Sponsored Newspapers In Education Content
ON THE ROAD TO BEING ON YOUR OWN
CREDIT 101
UNDERSTANDING CREDIT
Wow. It’s probably hard to imagine you’ll be on your own someday—earning
your own money, paying your own bills, living by your own rules. Of course,
along with freedom comes financial responsibilities. It may seem a little
scary. Fortunately, there are a lot of tools that can help—like good budgeting
and saving habits. But credit can also be a valuable tool. You may have
heard you should avoid credit at all costs. Not necessarily! Credit can be
helpful or harmful, depending on how it’s used.
Revolving credit
With revolving credit, you have the ability
to borrow money over and over. The lender
gives you a maximum credit limit, and you
can make charges up to that limit. Each
month, you can either pay the balance in
full, or carry a balance (revolve the debt)
and make a payment with interest.
Installment credit
With installment credit, a creditor loans you a specific
amount of money and you agree to repay the money and
interest in equal monthly payments (installments) over a set
period of time. The amount of each installment depends
on a number of variables, including the purchase price, the
amount of any down payment and the loan terms.
This is where it gets interesting
Credit usually comes with a cost. In most instances, if you don’t pay the full amount due on a loan, the lender will charge you
interest. Interest is a percentage of the amount you borrow, paid to the lender as compensation for loaning you the money.
When is it appropriate to use credit?
Credit can seem like “free money” since it gives you access to money you may not have. Who wouldn’t want that?
But the reality is, credit comes with a cost. So it’s best to use credit on things that will give you a return of some
kind in the long-term.
Wondering whether it’s a good use of credit? Ask yourself:
will this improve my well-being or future security?
GOOD THINKING!
Education loan
Home loan
Car loan for transportation to a job
Emergency loan (unplanned
essential expenses like medical bills)
THINK AGAIN.
Giant flat-screen TV
Spring break trip with friends
Tattoo
New bike or snowboard
SHOULD I PAY FOR IT WITH CREDIT?
WHAT IS CREDIT?
Credit is the ability to borrow money from a lender to pay for something that you may
or may not otherwise be able to afford. As the borrower, you promise to pay the lender
back the amount you borrowed. Reputable sources of credit include credit unions,
banks, savings and loans, and credit card companies.
There are two primary types of credit.
