The Basics

C is for Credit

Few can afford to purchase everything they need — much less everything they want — without a little help.

What is Credit?

Credit is an agreement between a lending organisation — be it a bank, a store, a credit card company, or others — and a borrower, namely you. That agreement puts money in your hand, in your bank, or on a credit card, for your use. The terms of repayment, including interest charges, are usually set up front.

The various types of credit available to you depend on your financial situation, financial needs, and the lending partner you choose.

Three Types of Credit

Type 1: Personal Loans
Personal loans are a well-known, old-fashioned way to get money. They can make large items like cars, homes and even financial investments a reality. Loans come in a lump sum that must be paid back regularly by a specific date. The longer you take, the more interest you’ll pay — one of the basic rules of credit.

Type 2: Lines of Credit
A personal line of credit is similar to a loan — money borrowed for large purchases or expenses. Unlike a loan, it’s not a lump sum. Instead, it offers a specified amount of money available for your use. Interest is charged only when it’s used. Once you pay off the used portion the interest charges stop, and you can continue to access it.

Type 3: Credit Cards
Credit cards are the most popular and most flexible source of credit available. They are issued by banks and other financial institutions or through stores, gas stations, and various retail outlets.

The best reasons to use a credit card are for convenience, flexibility, and for the purchase benefits that many new cards offer. Consider the following before choosing or using a credit card:

	Credit cards are useful for purchases of all sizes, big or small. Whether you’re buying your clothes or a home, a credit card can make sense.
	Monthly credit card statements provide a great overview of your spending. It’s important to know where your money goes in order to manage it.
	Never make purchases you can’t afford. If you routinely buy items that are beyond your means, credit cards, lines of credit and loans are not going to help you break your habit.