Credit card

Everything you need to know about credit

What is credit? Essentially, credit is when you buy now and pay later. This usually involves a fee, which includes interest and sometimes service charges. The fee is the additional price you must pay for not having the money to buy something up front.

When you get a loan or use credit, you need to pay back the amount you borrowed plus interest. The amount of interest is usually shown as a percentage of the money borrowed. Many people have debt, and many people buy things using credit.

If you’re careful, credit cards can be great tools. Try to use them only when you know you can pay off the bill at the end of the month. Paying off your full credit card balance each month saves you money, since you’re not paying interest fees.

Paying off other debt, such as a line of credit, works the same way. Paying back the money you borrowed also helps you build a good credit history and get a better credit score. If you can’t pay off your full credit card balance each month, you still need to make the minimum payment to keep your credit history strong. Lowering the amount you owe, even a little, saves you money since you’re paying less interest.

Debt and credit are ordinary parts of how we manage our money. Sometimes debt and credit help us, and sometimes they can cause trouble.

Why do you need credit?

It might seem like a good idea to avoid credit in order to not go into debt. However, it’s important to build up credit history in case you ever need a loan.

Your credit history gives information about how you have used credit in the past. Having a good credit history can help you in a few different ways.

There are four ways that your credit history might be used:

  1. Lenders, like banks and credit card companies, may use it to decide if they’ll give you a loan, credit card, or mortgage.
  2. Property owners may use it to decide if they’ll rent you an apartment.
  3. Insurance companies may use it to decide if they’ll sell you insurance for your car or home.
  4. Employers may use it to decide if they’ll hire you.

Your credit score

Your credit score or credit rating is a number between 300 and 900. It shows how likely you are to pay back a loan based on your credit history. A good credit score can help you get a lower interest rate when you need to borrow money.

How to build good credit history

You can’t build a credit history without using credit. Just make sure that when you use it, you follow the tips below so that you build a good credit history:

  1. Pay your bills on time. Late payments hurt your credit history. Keep track of your due dates and manage your money so you can pay your bills on time.
  2. Pay your balance in full. This is a good way to keep your debt under control. If you can’t pay your balance in full, pay as much as you can by the due date. Try to at least make the minimum payment.
  3. Pay off your debt as fast as you can. Being in debt for a long time will cost you a lot in interest and can be hard to manage.
  4. Watch out for your credit limit. Try to keep your balance well below your credit limit.

For more helpful information on credit, download our free workbook on borrowing money. This workbook is part of the Money Matters financial literacy program for adult learners. Find out more at