Credit 101

You might need to buy a computer one of these days, or upgrade the one you have. But you might not have the money to pay for it in cash! What's the answer? Credit Credit: Money loaned to an individual to carry out a project, make a purchase or cover unexpected expenses.   could be the solution.

You could ask your family or friends to lend you some money or apply for a loan at your caisse. Before your caisse lends you money, it will want to know about

• your income.
• your financial assets (your savings, investments, and possessions of value, like a car, for example).
• your credit history.

Here’s all you need to know before using credit:

What is interest?
Who uses credit?
Under control
How do I rate?
Good rep or bad?

What is interest?

Credit gives you access to money that you can use immediately. But you've got to pay it back- either all at once or in a number of payments staggered over a certain period. In return for this service, the lender requires you to pay interest.

Interest is an amount paid to the lender by the borrower. It's a way for the lender to earn income on the money loaned.

Interest is expressed as a percentage. For example, if you borrow $2,000 at a 10% interest rate, you will have to pay back $2,215 over a period of 2 years. That way, the lender earned $215 from the money loaned to you.

Who uses credit?

Almost everybody borrows at some time or another. For example, would you have the cash tomorrow to pay for

• a computer?
• a car?
• a trip overseas?

Not many people would! In fact, lots of people even borrow money for investment purposes.

Here are some other examples of situations where credit comes in handy:

• Your mom and dad's car needs major and unexpected repairs. They can borrow to pay the garage.
• Your neighbour just put in an outdoor pool. There's no way he paid for a big ticket item like that all in one shot!
• A university education costs a lot more than high school or college studies. You could take out a student loan as a form of credit.

Under control

When you turn 18, you can apply for your first credit card! Here's a bit of advice to keep in mind:

• Use your card in emergencies or to make big purchases. Avoid charging impulse purchases.
• Pay your entire monthly credit card balance Credit card balance: Amount you must pay to reimburse the purchases you charged to your credit card.   before the deadline on your statement. That way, you avoid paying interest.
• Respect your credit limit Credit limit: Maximum amount you can charge to your credit card.   and don't increase it while you are a student
.
• Track your purchases. Keep your receipts and check them against your statement each month.
• Don't lend your card to anyone and never give out your Personal Identification Number (PIN).

How do I rate?

Your credit rating is like your reputation for paying off what you owe. The better your rating, the more easily you can get access to credit through a financial institution.

Before granting you a loan, a merchant or financial institution will contact the credit bureau Credit bureau: Information centre on consumer credit use.   to check whether you're considered a good or bad credit risk. It goes without saying that if you're considered a bad risk, it will be harder for you to obtain credit.

Most information on your credit history is kept for 7 years. Together, it makes up your credit rating.

Good rep or bad?

To get a good credit rating, you have to

• pay your bills promptly.
• pay your credit card balance on time every month once you have a card.
• borrow only what you need, according to your needs.
• repay your loans on time and as quickly as possible–that way you earn a good credit rating and you save on interest!

If you don't use credit wisely, your bad credit rating will cause you a lot of problems the day you decide to purchase a car, rent an apartment, or buy your first computer. A poor credit rating can also influence a potential employer.

Remember, even minor slipups on your part will stay on your credit record for 7 years. So take good care of your credit rating!