Credit Credit is a sum of money a person can use for a period of time before having to reimburse the lender.

Why Should You Know This? Understanding credit will allow you to avoid getting too deeply in debt. You can comparison shop and make sure that you are getting the best deal. You won’t become a victim of a scam.

Advantages of Credit Can be used in an emergency. Can be used to get rewards, points, miles, or cash back. Can be used to build up your credit rating.

Disadvantages of Credit If you accumulate too much debt, you may not be able to make payments on time. Late payments and high balances will ruin your credit rating. You can end up paying more than the item is worth.

Credit Agreements and Reports A credit bureau is an agency that collects information on how promptly people and businesses pay their bills.

Credit Agreements and Reports The credit bureau gives you a credit rating, a score based on your payment behavior, income, employment, and other factors. If you have a poor credit rating, you may be denied a car loan or a mortgage.

The Cost of Credit Many credit card companies charge annual fees. The amount is fixed and is charged to your account regardless of how much you use your card. Typically $25-50 dollars per year.

The Cost of Credit It is not free to borrow money. When you borrow money you must pay an interest rate. The interest rate is the cost to borrow money. The lower the rate, the less money it costs you.

The Cost of Credit An annual percentage rate (APR) is the amount of interest for one year, expressed as a percentage. - Yearly Rate The APR allows you to compare the costs of credit from different lenders.

The Cost of Credit You are making payments because you want to pay down your outstanding balance. Your outstanding balance is the amount that you owe on your credit card.

The Cost of Credit The minimum monthly payment is the dollar amount each month that must be paid to prevent the account from becoming delinquent. You must pay this or your credit rating will suffer. It is better to pay more if you want your balance to go down.

The Cost of Credit Every month you will receive a statement with this information on it. It will also include the billing cycle, the number of days in the billing period.

The Cost of Credit A grace period is a time during which interest is not charged. If you pay the entire amount by the due date stated on your bill, you are not charged interest or any other finance charges.

Signs That You are in Trouble: You are only making minimum payments. You are using too many balance transfers. A balance transfer allows you to use the available credit on one card to pay off another. Phone calls from bill collectors. Using credit to pay for every day items.