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Last update: August 14, 2024
6 minutes read
Learn all about what credit is with our comprehensive guide. From choosing the best credit card to maximizing rewards, get expert insights for smart financial decisions.
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
Ever found yourself scratching your head, wondering what everyone means by the word "credit", and wondered how it might affect you as a college student or a fresh graduate? Or maybe how it ties into those credit cards or student loans you might be considering? Well, let's dive deep and unravel this mystery!
What is credit? At its core, credit is a contractual agreement where a borrower receives something of value and commits to repaying the lender at a later date, often with some interest. Additionally, creditworthiness can represent how trustworthy a person or company is when it comes to managing and repaying borrowed funds.
You've probably heard your friends or maybe even your parents go on about the importance of "good credit." But let's be real here: why should a young person like you give a hoot about it? Well, because it's the key that unlocks some massive doors in life, like buying a car or getting your own apartment.
Imagine wanting to buy that sleek new ride to impress on your first job interview - you have the down payment, but you still need a car loan. But, when you walk into the dealership, the salesman gives you the side-eye and says your credit score isn't looking too hot. Ouch!
This doesn’t only apply to buying cars but also homes, renovations, or even that cool new iPhone. Your credit score can affect the interest rates you get or if you even qualify in the first place.
How about jobs and relationships? Yeah, it matters there too. Some employers check credit scores to see how responsible you are.
And relationships? Money issues, including credit scores, are a top reason couples argue.
So, keep it healthy, not just for the banks but for love too! One woman even put her credit score in her profile on a dating app and reported getting hundreds of matches and comments!
Before diving into the world of credit, it's essential to know the do’s and don'ts. Here's a quick table to guide you:
Pay your balance in full every month
Review statements regularly
Set a monthly budget
Use rewards wisely
Spend more than you can afford
Open multiple cards simultaneously
Ignore interest rates
Make only minimum payments
A credit limit is the highest amount a lender, like a credit card issuer, is willing to let a borrower spend or owe. This usually applies to revolving debt or lines of credit, as opposed to a fixed loan.
When a borrower hits this threshold, they can't spend any more until they've paid down some of their debt. This concept doesn't just apply to credit cards but to lines of credit and "buy now, pay later" loans too.
A line of credit is a flexible loan offered by banks or financial institutions, allowing borrowers to access funds up to a set limit when they need to, rather than borrowing the full amount upfront.
An example is the home equity line of credit (HELOC), where homeowners can borrow against their property's value for projects like home improvements.
Credit isn't just a one-size-fits-all deal. It comes in a few flavors.
Let's face it, understanding credit is a good idea, but how can you make it work for you? You might be thinking, "I'm just a student, how can I start building credit?" or "I've messed up, can I rebuild my credit?"
The answer is, "Of course, you can!" And here's how:
Navigating college life can be challenging, especially when juggling studies, work, and personal finances. Credit cards often become a go-to for many students, offering a mix of benefits and pitfalls. Let's break down the pros and cons of wielding that piece of plastic during your college years.
Navigating student loans, refinancing, and scholarships can be overwhelming, which is why we created TuitionHero. We guide you through managing college finances, including loans, scholarships, credit card offers, and FAFSA assistance. Our goal is to empower you with the knowledge and resources needed to make informed decisions.
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So, with all this talk about credit, financial responsibilities, and making those smart money moves, wouldn't you want a trusted companion on this journey? That's us. At TuitionHero, we're committed to making your college financial journey not just bearable, but successful.
Brian Flaherty
Brian is a graduate of the University of Virginia where he earned a B.A. in Economics. After graduation, Brian spent four years working working at a wealth management firm advising high-net-worth investors and institutions. During his time there, he passed the rigorous Series 65 exam and rose to a high-level strategy position.
Rachel Lauren
Rachel Lauren is the co-founder and COO of Debbie, a tech startup that offers an app to help people pay off their credit card debt for good through rewards and behavioral psychology. She was previously a venture capital investor at BDMI, as well as an equity research analyst at Credit Suisse.
At TuitionHero, we're not just passionate about our work - we take immense pride in it. Our dedicated team of writers diligently follows strict editorial standards, ensuring that every piece of content we publish is accurate, current, and highly valuable. We don't just strive for quality; we aim for excellence.
While you're at it, here are some other college finance-related blog posts you might be interested in.
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