Credit Basics
Borrowing money you promise to pay back later.
Credit
The type of card that DOES impact your credit history.
credit card
The interest rate charged on balances you carry month to month.
APR
Someone who promises to pay a loan if the borrower doesn’t.
cosigner
A full history of how you pay back loans and credit cards.
credit report
A history of paying loans and credit cards responsibly.
Creditworthiness
Why lenders use your Social Security number when opening an account.
to protect against fraud
Why is a lower APR better for the borrower?
you pay less interest
The reason a borrower may need a cosigner.
they can’t qualify for the loan alone
A number that shows a snapshot of your credit at one moment in time.
credit score
One long-term benefit of having good credit.
being able to buy major purchases like cars, houses, or education
The time between making a purchase and when interest begins.
grace period
Why do minimum payments exist from a psychology perspective?
they make debt feel manageable and reduce urgency
three things lenders look for when evaluating borrowers or cosigners.
capacity, collateral, and character
The best credit utilization rate for lenders.
27.5% (or under 30%)
The type of card that does NOT build credit.
debit card
The best strategy for paying your credit card bill.
paying the entire balance every month
What happens if you miss the grace period?
interest begins charging on your balance
Which “C” refers to assets like a car or house.
collateral
The habit that lowers your credit score the most.
paying bills late
Why is credit considered a “trust system”
because lenders judge you based on your past payment behavior
Why paying more than the minimum payment is important.
because it saves money on interest
Why do credit cards make people feel richer than cash?
because the pain of spending is delayed
Why cosigning is risky.
the cosigner’s credit is damaged if payments are missed
The first step you should take if you suspect identity theft.
checking your credit report