Getting Started With Your Finances - Credit
If you're anything like me, you were ready to take advantage of your 18-year-old legality as soon as your birthday rolled around. Of course, by no means is one confined from building profits at a younger age, but there's no argument that once you turn 18, there's a whole new playing field available to you. Because of how broad that playing field is, however, it can be a little overwhelming to figure out where to start. This article is the first of a series I'll be releasing on our blog discussing the best places to get started regardless of your long-term goals.
This article specifically, as the title entails, will focus on starting your first line of Credit.
Recommended Credit Lines For College Students:
What Is Credit?
We've all heard of the wonderful tool known as the "Credit Card", but how does one of the cool plastic cards with an embedded chip actually work?
To understand that we need to address what credit really is.
Credit is essentially a loan.
There are two specific types of credit:
Installment Loans refer to set amounts of money loaned to you for a specific time and purpose. These are single-time loans of the value that is repaid over a set period of time in equal portions known as installments.
Examples include:
Mortgages
Student Loans
Auto Loans
Revolving Credit is a recurring loan that you can keep using as long as the previous loan was paid off. The loan is known as a "Credit". You can make purchases of any goods & services as long as the cost remains within the limits of your credit.
Examples include:
The Credit Card!!!!
The Costs Of Credit
To start a line of credit does come with a couple of costs. Some of them are set costs while others are dependant on your spending habits, but it's different for each card.
Annual Fees:
Some credit card lines come with an annual fee as a subscription cost for access to various rewards programs. The fees can range anywhere from $0 on an entry-level line of credit to $200 for a limited entry line.
APR% Interest:
APR really can be explained the most simple way as "Interest On Late Payments". When you spend credit, the credit card company that loaned you money on that credit wants their money back by the date your statement is due. Of course, there's more involved but that is the main framework. We'll explain various policies on different credit lines when we explore options and also get into credit scores.
Credit Scores Explained:
The Takeaway
If you use credit the right way, it can be very advantageous to freeing up your liquid money into making investments that grow your overall wealth. Get started early to learn about credit as you use it and continue on your way to a growing portfolio.
Check out our other articles to learn more. If you can't find an answer to a specific question, sign up to get access to our forums where someone may have had the same question in the past. Still no luck? Reach out to us with the text box, where we'll get back to you personally.
