Achieving a Financial Goal

Day #6 of 30

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Borrowing

“Not all money is created equal.”

What is credit?

A form of borrowing that gives a customer the ability to obtain something on a promise to repay in the future.

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Credit and credit scores.

When you borrow, certain information is shared with a credit bureau. Over time, additional information, such as whether you’ve paid your bills on time, whether you’ve missed payments and how much debt is outstanding, will get shared with the credit bureau. These factors go into calculating your credit score—a number assigned that indicates to lenders your capacity to repay a loan—as reported on your credit rating report.

Credit score range.

300?(just getting started) to?900?(the best score you can achieve)

The “magic middle number” is?650. A score above will likely qualify you for a standard loan; a score below would likely create difficulty in getting new credit.

Why do we borrow?

·??????? To help build credit history for future needs (such as a mortgage)

·??????? To satisfy short-term purchasing needs or online payments (vacations, gifts, personal and household items)

·??????? To facilitate longer-term goals (purchasing a car or house or paying for education)

#1 tip for maintaining credit score …

Pay all bills on time, even if it’s just the minimum payment. Missing even one payment can negatively impact your credit score.

Three main types of credit: Credit cards, personal/term loans, line of credit

Regardless of type, remember that all forms of credit come with a cost—i.e. interest, usually monthly, and fees (the amounts lenders charge for use of their money).

Fast facts

• Credit card—Great way of establishing credit and credit score at an early age; typically charge higher interest rates, so should be paid off monthly when possible.
• Personal/term loan—Suitable when there’s a need to borrow money for a specific purpose and the repayment term is longer than a year; interest rates are more moderate.
• Line of credit—Most flexible way of borrowing money, whereby a certain amount of money is requested but doesn’t need to be used all at once; can usually repay the loan and re-borrow; tends to carry the lowest interest rate.

Other options for borrowing

• Lease/finance (a car, for example)
• Mortgage loans (to finance the purchase of a property)

Tips to manage debt.

To avoid over-indebtedness, it’s crucial to ensure funds are available to pay your bills. Planning goes a long way to help stay on top of debt. Try creating a list of all your outstanding credit and write down when payments are due and what the interest rate is for each. A good general rule is to repay the debt with the highest interest rate first, and always try to determine where you can make more than the minimum monthly payment.