Credit and You – You are in “Charge!”

Buying goods or services on credit, with the promise you will pay for them later, can seem like one of the greatest "inventions" in the modern economy. Where people once used to have to save up all of the money before they could buy something, now they can just "sign on the dotted line" and start enjoying an item today.

Although credit can be a great thing when used responsibly, the promise of "take it now, pay for it later" has lead many people to borrow so much money that they spend all of their time working to pay it back, or to lose it all later when the bank comes to take back their car, TV, or even their house.

As you enter adulthood, how you use credit will be one of the most important skills you will have to learn to master. Do you want to go to college? You may have to take out student loans to pay for tuition. Want to buy a new or nearly new car? You might be able to get a loan for some of the money. Are you looking to buy a house? You'll need to get a mortgage from the bank unless you want to save it all up first!

You'll also have to learn to resist the lure of buying things now on credit just because you want them. As we'll see in this lesson, credit is everywhere. All kinds of businesses offer credit for the simple reason that it's profitable. Where does the profit come from? Your pocket. When you buy something on credit, you are responsible for the money you borrow as well as the interest and any penalties you might have to pay if you don't pay on time. The better you manage your credit, the better your credit history will be and the less that businesses will charge you to borrow money because you are a good risk. On the flip side, the worse you manage your credit, businesses will charge you higher rates because you are a bad risk, if they'll even let you borrow in the first place.

Let's look at some of the different types of credit available and the costs and benefits of each so that you can have the tools to select the best option for you, when the time comes to borrow.

Essential Question

• How can one determine the best way to finance a purchase?