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Financial Literacy

5 Things to Know About Credit


Credit is power. The word credit literally refers to your borrowing capacity, which is the maximum amount you can borrow without putting your financial health at risk. Your borrowing capacity is based on your history of paying money back to lenders, which affects how much cash you can borrow or your access to goods and services.

With so many moving parts involved, understanding credit may seem confusing or intimidating. Honestly, this fear is much more common than you may think. But there are some misconceptions about credit, and we are here to clear things up. In this blog, we’ll provide you with tips and financial guidance around credit, what to avoid, and highlights for what to keep track of with your credit card!

Credit is Not Cash or a Cash Substitute

Now while you can make purchases using credit, it’s a whole different animal from cash. Credit is granted by creditors (lenders, merchants, and service providers) based on their confidence that you can be trusted to pay back what you borrowed as well as any interest or fees that may apply.

Some of the major advantages of using credit cards:

  • They offer greater convenience
  • They provide stronger theft and fraud protection
  • Users can earn significant rewards (depending on the type of card)

Credit card users can pay off their payments over time rather than upfront, which can come in handy. But credit can be a double-edged sword for this very reason. Folks may feel emotionally disconnected from the amount they are spending at the time of their purchases which could lead to overspending and a higher balance than they anticipated. So it’s crucial that you charge your card wisely and not treat credit like you would treat cash. However, responsible credit card use is one of the easiest and fastest ways to build credit.

The Importance of a Good Credit Score

Having a good credit score is key in your financial life. Good credit can be indicative of a healthy financial situation, which creditors love to see. Creditors decide whether or not to grant individuals credit based on their good credit, or “creditworthiness.” Your creditworthiness can be the make-or-break detail that determines whether you get a mortgage, auto loan, or student loan. But what is a good credit score? How do you achieve good credit?

The score ranges vary depending on the credit scoring model, but generally, credit scores from 670-739 are considered good. Two of the most effective ways to build good credit are by consistently paying your bills on time and keeping your credit-to-debt ratio low. Additionally, you can boost your score by having a mix of lines of credit and loans. Lenders look for a variety of credit when deciding what interest rates or loans to offer you because it shows that you are able to manage the obligations of borrowing various kinds of debt. You may already have some lines of credit such as an old credit card, student loan, or car loan. Just remember to pay close attention to the payment due dates and utilization rate.

Debt Can Happen to Anyone

Sadly, anybody can easily fall into credit card debt. But of course, we have tips on how to avoid credit debt!

First, you have to understand that lines of credit and loans are essentially contracts that bare responsibilities and consequences. As a borrower, you are in charge of paying the full balance by the due date each month. Making late payments or missing due dates is one of the most harmful mistakes you can make. Not only can this cause your credit score to drop significantly, but it can cause you to incur more interest and late fees. So it’s a great idea to try to make the minimum monthly payment on your credit cards and loans.

Not All Credit Cards are Created Equally

It is easy to sign up for a credit card. In fact, we have tips on how to apply for a credit card. There are five main types of credit cards including:

  • Unsecured credit cards
  • Secured credit cards
  • Student credit cards
  • Business credit cards
  • Store credit cards

Every creditor has varying requirements that applicants must meet in order to qualify, so take note of that. Also, certain cards may be more suitable for you and your unique circumstances than others. Make sure you read all of the card details (i.e. annual fees and the annual percentage rate). For instance, if you’re just starting out in your credit journey, you may benefit from applying for a secured card or a student credit card if you’re still in school. Both are excellent options for first-time cardholders and people with little to no credit history. Depending on the issuer or the type of card you go with, the issuer may provide resources like credit-building tools. Read up on what different cards offer and compare.

You may be interested in the Highlands Community Bank personal or business credit card. With your financial wellness and security in mind, we are introducing cards that can make your banking experience easier. As your community bank, we aim to provide you with an array of resources and perks to maximize your power as a consumer or business owner.

Do research before applying for any credit card, and choose whichever one best meets your needs!

Credit Errors and How to Fix Them

It’s vital to make sure the information on a credit report is accurate. You should regularly check your credit report so you can spot any errors. When errors remain on your credit report, they can cause your score to decrease. So if you ever catch anything that seems incorrect, file a dispute immediately.

We recommend that you enroll in a credit monitoring service so you’ll be notified of credit score changes, credit inquiries, delinquency, potential credit card fraud and identity theft, and more. You can report errors to any of the three major credit card bureaus’ websites: Equifax, Experian, and TransUnion.

Want More Tips On Credit Cards? Lean On Highlands Community Bank!

As your neighbors and lenders in the Alleghany Highlands, you can come to us for all your banking needs! Peruse our blog to find other helpful articles about credit or give us a shout. Call us or stop in to speak with one of our bankers.

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