What is Credit and Why is it Important?
If you can manage your credit right, you’ll have a better chance at getting that new car, getting that apartment or new home, or even getting that new job! Credit affects your life in so many ways; it really pays to know what it is and how to use it.
Credit is an agreement in which you receive something of value now (like a loan for a car or a house), and agree to pay back the seller or lender later. If you don’t pay back the amount soon, (usually within a month), you pay interest as well. Interest is a small percentage of the cost of the item that’s added on each month to the total amount you owe and must be paid in order to get the loan.
When you make your payments for your loan on time, it appears on your credit report as a good thing. How to Read a Credit Report. If you miss a payment, it can go on your credit report too, and you’ll be charged late fees.
Lenders use the information from your credit report to come up with a credit score for you, and this score is what banks and companies use to decide whether or not they’ll do business with you (such as give you a loan, give you a job or rent you an apartment) and on what terms (such as how much interest they’ll charge).
If you’ve already opened a bank or credit union account and you have a budget that you follow closely, then you’re ready to start working with credit, but if not, it can be hard to manage a credit card or a loan without overspending.