Understanding credit in modern day America
How do I use the credit?
When it says you use credit, it usually means you use a credit card. It could also mean that you have a loan. A loan is another way to use credit.
Using credit means that you borrow money to buy something.
You borrow money (with your credit card or a loan).
You buy what you want.
Then you pay off the loan – with interest.
What are interests?
Interest is what you pay to use someone else’s money. You repay the money to the person who gave you the credit card or the loan.
Credit cards and loans have different interest rates. Look at the “APR”. APR stands for Annual Percentage Rate. That’s what you pay in interest for a full year.
With a lower interest rate you pay less money. With a higher interest rate you pay more money. For example, a loan with an interest rate of 2% costs less than a loan with an interest rate of 18%.
When can I use credit?
Many people use a credit card to buy everyday things. You could use a credit card to pay:
Gasoline.
Food.
Services – like a haircut.
Loans are generally used for more expensive things. You could take out a loan to pay:
Furniture.
Studies.
A car or a house.
Where can I get a credit card?
Banks and credit unions offer credit cards. Generally, they offer credit cards to people who have a good credit history.
Some stores offer credit cards. A store credit card can only be used at that store. Sometimes if you don’t have a good credit history, it’s easier to get these cards. Sometimes a store credit card is a good way to establish your credit history.
What if I can’t get a credit card?
Some banks and companies offer secured credit cards. This means that you deposit money in the bank. Then spend that money using the secured credit card.
A secured credit card works like a debit card. You use your money, you don’t use money borrowed from the bank. A secured credit card can help you establish your credit history.
Where can I get a loan?
Banks and credit unions offer loans. They generally offer loans to people who have a good credit history.
Some stores offer loans to buy their products. Generally, these loans cost more. Why? Because interest on a store loan is generally higher than on a bank loan.
What if I can’t get a loan?
There are other ways to borrow money. Some people go to a payday lender. Some people use their car title to get a loan. Some people pawn things.
These other ways of borrowing money are expensive. It is almost always more expensive than going to the bank, credit union, or store. Some people who use these ways to borrow money later have debt problems. The charges can be very high. It is difficult to repay the money and get rid of the debt.
How do credit cards work?
When you use a credit card, someone is lending you money to buy something. It works like this:
You want to buy food.
Pay with a bank credit card.
The bank pays the store for the food you bought.
The bank sends you a credit card bill with the charges for your food purchase.
You pay your credit card bill.
How do I get a credit card?
To get a credit card you must submit an application. The company that receives your application will review your credit history. The company uses your credit history to decide:
If he will give you a credit card.
How much you will pay for the card.
Before you apply for a credit card, be sure to compare at least three cards to get the best possible deal.
How do I compare credit cards?
Credit cards offer different conditions. Before you take out a credit card, find out these things:
What is the annual charge?
What you pay to use the card for a year.
What is the APR?
APR stands for Annual Percentage Rate. What you will pay per year in interest. A lower interest rate means you pay less interest. This costs you less money.
Are there any other charges? How much will it cost you if you are late with a payment? How much will it cost you if you go over your credit limit?
What is the grace period? This is the time between the time you spend the money and the time the card company starts charging you interest. A longer grace period is better. Look for a grace period of at least 25 days.
What if I can’t get a credit card?
Maybe you can get a secured credit card. There are several credit unions, some banks, and other companies that offer secured credit cards.
Using a secured credit card can help you establish or improve your credit history.
Also See:
How to Open A Bank Account in the United States
The Best Banks for Non-Residents in the US
The 10 UK Universities that Accepts the Most International Students
5 Top Reasons for Refusal of Students Visa in the UK
Coverage Includes In Health Insurance
What is a secured credit card?
A secured credit card is a card that you pay for in advance. You put money into an account. You can then use the card to spend up to that amount of money. It works like a regular credit or debit card. It is not the same as a prepaid card:
Generally, a secured credit card has lower fees than a prepaid card.
A secured credit card should send information to all three credit reporting companies. Most prepaid cards don’t.
How do secured credit cards work?
Secured credit cards work like this:
You apply for a secured card at a credit union, bank, or credit card company.
The credit union, bank, or company checks your credit history.
If your application is approved, you pay a fee to use the card for one year.
You deposit money in the bank. The deposit is usually between $300 and $500.
Sometimes the amount you deposit is your credit limit. But sometimes your credit limit is lower than your deposit. Your credit limit means the amount of money you can spend on the card.
You use the card to buy things. You can only spend up to the amount set as your credit limit.
You redeposit that amount of money into your account. You can spend that money the following month.
The secured credit card company sends information to the three credit reporting companies about how you pay for your card.
How do I choose a guaranteed card?
Before you apply for a card, find out these things:
Do you charge any fee to apply? Look for a card that doesn’t have this fee.
What other charges does the card have? Notice:
A low annual fee.
A card with no processing fees.
A low interest rate.
Does the card company send your information to all three credit reporting companies? You want them to. This way you could improve your credit history.
What interest does your deposit give you? It should give you interest like any other bank account.
How should I use my credit card?
Using your credit card is like getting a loan. When you use your credit card to buy something, you are borrowing money.
Some people use a credit card to buy things they can’t pay for right away. Some people use a credit card to establish or improve their credit history. Sometimes it’s easier not to carry money with you. Sometimes it’s easier to pay for your purchases once a month.
If you pay everything you owe every month, you pay less for your credit.
Should I pay the full bill each month?
You can pay your bill in full each month. That means you would not have to pay interest. Credit costs less.
You may not pay your bill in full each month. You could only pay the minimum payment. This means that you will pay interest on what you do not pay. That amount is called the balance. If you only pay the minimum, the credit will cost you more.
If you don’t pay the minimum payment, also called the minimum amount due:
Your interest rate could be increased.
You may have to pay charges.
Your credit will cost you a lot of money.
This is an example of what happens when you pay the minimum.
The interest rate on your credit card is 18%.
You owe $1,000.
Your minimum payment is $50 per month.
If you pay only $50 each month, and never spend a dollar on the card again, it will take 5 years to pay the entire bill.
During those 5 years you will pay $360 in interest.
The $1,000 you borrowed will cost you $1,360.
How do I help my credit history when I use credit?
Do you want to help your credit history? Here are some ways to help using credit:
Use your credit card a few times a month.
Buy the things you can afford that month.
Pay your credit card bill in full each month.
Don’t leave an unpaid balance on your card.
This is the way to improve your credit history. But it takes time.
How do the loans work?
You borrow money, it can be from a bank or credit union. You agree to pay that money within a certain amount of time. You also agree to pay a certain interest rate. Generally, loan interest rates are lower than credit card interest rates.
Where can I get a loan?
Most banks and credit unions offer loans. To get a loan you have to apply. The bank or credit union will check your credit.
The bank and credit union use your credit history to decide:
If they will give you a loan.
How much will you pay for the loan?
You could have a bad credit history or no credit history at all. That means you couldn’t get a loan from a bank or credit union. Improving your credit to get a loan takes time.
Sometimes you can apply for a loan in a store. You can use the store loan to buy something at that store. Sometimes if you have bad credit, it is easier to get these loans.
Stores also check your credit history. Sometimes store loans have higher interest rates. A loan from a store can cost you more money than a loan from a bank.
What if I can’t get a loan?
You may have to buy something cheaper. You could buy it using a credit card, even if you have to pay interest.
But maybe you can’t use a credit card. Or maybe you need to pay something higher priced.
Some people go to a payday lender. Some use the title to your car to get a loan. Some people pawn things.
These ways of borrowing money are expensive. The fees and interest rates are very high. These lenders are not a good option if you need a loan for a large amount or if you need money very soon.
The truth is that there may not be a good answer to this question.
You can establish a credit history or improve your credit history. One way to do this is to obtain credit and use it wisely. This takes time.
How can I get credit?
If you don’t have credit, it’s best to start with a credit card .
Compare multiple credit cards. Request the one that offers you the most convenient deal. Notice:
A low annual fee.
A low APR or annual percentage rate.
Lower charges:
If you pay late.
If you exceed the credit limit.
A long grace period. This is the time between the time you spend the money and the time the card company starts charging you interest. A longer grace period is better. Look for a grace period of at least 25 days.
If you can’t get a regular credit card, try getting a secured credit card. Apply only for those cards that submit information to all three credit reporting companies.
Look for a secured credit card:
No application fees.
With a low APR or Annual Percentage Rate.
With lower annual fees.
No processing fees.
With higher interest rates on the money you deposit.
How can I improve my credit?
You can use credit to establish and improve your credit history.
Use your credit card a few times a month.
Buy the things you can afford that month.
Pay your credit card bill in full each month. Don’t leave an unpaid balance on your card.
Pay your bill on the due date. Even if you pay it just one day late, it will cost you money.
People who do this begin to see improvements in their credit history. But it takes time.
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