When you are done reading this, try the Credit Quiz.
One of the most popular phrases when we shop is “Charge it”. But what does this mean when we use our charge or credit cards? What is credit?
Credit or credit cards allows the user to obtain goods, services or money in return for future payments. This is not a free service. When you use your credit card, you are also charged interest. Basically interest is payment to the credit card company for lending you the money to pay for whatever you have charged to your credit card.
How does this work? Let’s say that you make purchases at an entertainment store for $100, You put these items on your credit card. Several weeks later you will receive in the mail a statement from the credit card company saying that you charged $100 worth of merchandise at the entertainment store. It will tell you the least amount you must pay. This may be about $10 on this amount you have charged. If you pay the whole amount right away, you will not be charged interest. However,there will be an interest fee charged on whatever you don’t pay right away. If you only paid $10 on the $100 you owed, you would be charged interest on the remaining $90.
Can anyone get credit cards? How much can one charge on a credit card? Credit cards are usually issued to people who have proven they can pay – in other words, they have jobs or other assets that can be used towards paying off their credit card debts. When you get a credit card,you are given a line of credit. This line of credit is how much you can owe the credit card company at any given time. For example, if you had a $1000 line of credit and had charged $100 worth of goods, you would have $900 left that you could charge on your credit card.
There are two kinds of credit. Business credit is the kind of money lent to businesses to build stores, factories, purchase equipment, goods, etc.. The money that businesses are lent is generally referred to as capital. Let’s say you wanted to start a computer store. You would go to a bank, tell them of your plans and if they felt you had a good business plan that would succeed they might lend you the money. You would pay back the money they lend you over a certain amount of time, paying interest on the money you borrowed. If for any reason you didn’t pay back the money, the bank would take over the business you have started and you might be forced to file for bankruptcy, meaning that you are not able to pay back your debts.
Consumer credit is money that is lent to individuals so they can purchase goods or services. This is typically done with credit cards through a lending company. Several of these companies are MasterCard or Visa. Again, if you do not pay your credit card debts, you are not allowed to use your credit cards and you may be forced to declare bankruptcy if you own too much that you cannot repay.
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