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Credit! Uh huh, Yeah.  What is It Good For?  Absolutely Everything!

| February 11, 2019
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What exactly is consumer credit?  Consumer credit (aka consumer debt) allows you to purchase something today that you don’t pay for until later.  There are 2 types of credit:  installment and revolving.

 

Installment Credit

Revolving Credit

Uses

A loan for a fixed amount of money, where the borrower agrees to make monthly principal and interest payments within a defined timeframe (e.g., 30-yr mortgage, 60-mo car loans, student loans)

A line of credit where the borrower can use the funds repeatedly up to the credit limit and make partial or total payments towards the amount borrowed (e.g., credit cards, home equity lines of credit)

Interest Rates

Usually lower than revolving credit

Usually higher than installment credit

Payments

Repay principal plus interest within a set timeframe

Repay at least the minimum monthly balance

Failure to Pay

The lender can repossess the house, car, etc., and charge you penalties

You will be charged interest and late fees on any portion of the balance you don’t repay.  Interest (APR) charges can be over 20%

Best Practices

Repay principal and interest on time and in full

Repay outstanding balance on time and in full each month

 How to Build Credit: 

  • Get a credit card.
  • Only charge what you can afford to pay off in full each month.
  • Pay on time and in full each month.
  • Avoid having too many accounts.
  • Check your credit report and score annually.
  • Keep that credit card open, even if you move on to another type of card.

For your viewing pleasure, click on this video:  Building credit for the first time

What Doesn’t Build Credit:  Opening and closing credit cards, prepaid debit cards, PayPal credit cards.

How to Maintain Good Credit:  Once you begin establishing your credit history, you want to make sure you pay off your credit card bills and loans on time and in full.  Your payment history makes up 35% of your credit score.  Your credit score allows lenders to evaluate how likely you are to repay your debts.  A credit score can range from 300-850.  The higher the score, the more financially trustworthy you are.  A good credit score is 700 and above. 

Don’t think your credit score is a big deal?  Think again.  Your credit score can affect your ability to qualify for a credit card, the amount of credit extended to you, the APR on your credit card, your ability to qualify for a home or auto loan, as well as the interest rates on those loans, even your ability to land that dream job (employers run credit checks in addition to background checks). 

For your viewing pleasure, click on this video:  Credit Report versus Credit Score 

Editor's Note:  This blog post is part of the July 2017 edition of Odyssey NexGen Newsletter.  Curious about Odyssey's NexGen program?  Email [email protected] to learn more.   

Reviewed & approved via C2C by BT 7/11/17

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