Understanding Credit

As you prepare to step into adulthood, it's important to understand how credit works. It is a concept that is often misunderstood, yet it plays a significant role in your financial future.

What is Credit?

Credit is a way of borrowing money with the promise to pay them back later. It’s an important part of your financial life that can influence your ability to make big purchases, like a car or a house, in the future.

Types of Credit

• Credit Cards: These are cards issued by your credit union that allow you to borrow money to make purchases. You must pay back the borrowed amount, typically with interest, if not paid off within a certain timeframe.
• Loans: These are borrowed sums of money that must be repaid over time, usually with interest. Loans can be for various purposes, such as student loans for education, auto loans for cars, or personal loans for other needs.
• Lines of Credit: This is a flexible loan option where you can borrow money up to a certain limit as needed. You only pay interest on the amount you use.

Understanding Your Credit Score

Your credit score is a three-digit number that reflects your creditworthiness. It’s important because it can determine whether lenders will approve you for a loan or credit card and what interest rates you’ll receive.

Impacts Major Purchases: A good credit score can lead to lower interest rates on loans, saving you money on large purchases such as cars or homes.

Determines Loan Approval: Many lenders will check your credit score before giving you a loan. A higher score increases your chances of getting approved.

Can Affect Job Opportunities: Some employers check credit as part of their hiring process, especially for financial positions.

Understanding credit is an essential skill for your future financial success. By being informed, you can make better decisions that will benefit you in the long run—whether that means buying a car, financing your education, or owning a home someday. Remember, knowledge is power, so take the time to learn about these concepts now so you can build a strong financial foundation for your future. Happy learning!