Are You Ready for Credit?
Not necessarily hard to get, credit cards can be good and bad. For example, if you have a $1,000 car repair but not enough cash, credit lets you make the fix and continue driving. But it can be tempting to use a card when you don’t have money. This is an easy way to get into debt. Whether buying a flat-screen TV or lots of small purchases – coffee, CDs, meals – debt can add up surprisingly fast. The result can be a big bill with a high interest rate you can’t afford.
Before you begin purchasing with credit, know the rules of the credit game, outlined below.
What Is Credit?
- Credit is money made available to you for a period of time to pay for an item or service instead of paying in cash at the time of purchase.
- The only right way to use credit is to pay off your entire balance each month before being charged interest or a fee. If you can’t do that, you can’t afford a credit card.
Three Cs of Credit
Banks and credit unions look at three factors when deciding whether to lend you money:
- Capacity. Do you have a job or other income source with which to make payments?
- Character. Have you used credit before and paid previous bills on time?
- Capital. What do you own of value that could be used to repay a loan?
Risks
- Credit involves an interest rate, a percentage added to your bill each month as a charge for using the service.
- Depending on your rate and the time it takes to re-pay a loan, a purchase can cost double or triple its original price by the time you pay it off.
- Although convenient, many consumers find themselves on the negative side of credit -- it’s easy to get in debt and difficult to get out.
Learn more about how to manage your money with the Money Matters program available through your Boys & Girls Club.