Credit and Debit Quiz
When you use a credit card, you are effectively using someone else’s money with the idea that you pay them back within a certain period of time. If you do not pay the money back within the agreed span of time, there are consequences. In this case, it means interest on the outstanding money owed. When you borrow money, the lender will always wonder whether you will pay it back. Will you pay it back on time, will it be late, or will you simply not pay it back at all and default? This is called risk, and through various algorithms a number is generated called a credit score.
Over time a credit report is compiled that gives lenders a summary of your financial responsibility — if you’ve paid your bills on time, how much debt you’ve accrued, and so on. Any bills that have not been paid or are late have an effect on your credit score and will result in points being subtracted.
Remember whether you take out a loan or get a credit or store card, you will be effectively using someone else’s money. Your credit score will vary from 400 and 850. The lower the score indicates that you are a riskier investment, so your choice of credit cards will be limited and a lender will offer you money at a higher interest rate in order to protect itself. This ensures that the money will be reimbursed earlier. So even your car payment could be affected, depending on your credit score.
Credit scores can affect which credit cards and types of loan are available to you and, in some cases, whether you can be trusted in a job, particularly in the finance sector. If you are not able to manage your money, how will you be able to manage other peoples’?
You can get your credit score, also called a FICO score, from the three main credit bureaus: Equifax, Experian, and TransUnion. You may also come across a FAKO score, which is a credit score calculated by any company other than the three primary ones. If you ever need to dispute a payment, you will have to contest it with the credit bureau, which you can do online or through the mail. If for some reason a collection agency comes after you for money you owe, it is prohibited from threatening you, turning up at your workplace, and contacting you at home outside of predetermined hours, as stated in the Fair Debt Collection Practices Act.
There are times when you may need to take out a loan or an installment loan, perhaps to buy a car, to pay for tuition, or to purchase a house . When you take out the loan, you are made aware of the principal, the interest rate, the length of time the loan is taken over, the payment schedule, and the monthly payment. With credit cards, credit card companies allow the user to make a monthly minimum payment on the principal and balance of the card. The minimum payment usually covers 1 percent of the balance and wipes out the interest for that month. This is a revolving account, which can quickly get costly .
So make sure you pay your bills on time, borrow only what you need, and live within your means. Fixing a credit score takes time and costs you in the short term.