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Being credit smart can help you save a lot of money, and make life a lot less complicated and stressful. While credit reports, credit scores, credit cardholder agreements, annual percentage rates, loan terms, etc. can often be complicated, the definition of credit itself is fairly straightforward:
Credit can be defined as a contractual agreement in which a borrower receives something of value now (money, goods, or services) and agrees to repay the lending party at some time in the future.
Credit, for better or worse, is a reality of modern life. How credit is used is a matter of choice: Credit can be used wisely to help achieve the dreams of owning a home, a car, or financing a college education. Or, it can be used casually to ring up impulse purchases and credit card debts whose true human cost cannot be calculated in dollars and cents.
Through this "Guide to Understanding and Protecting Credit" series, we encourage you to become a personal credit expert. Understand your credit, how to use it wisely, and make sure you check your credit reports often for accuracy. This will not only help you get the credit you deserve, it can also be your "first line of defense" against identity theft.
One of the most important things to know is that it is up to you to take charge of your credit. You, not the credit bureaus or your creditors, are in control of your personal credit. Indeed, the only person who knows if the information contained in your credit reports is accurate is you. Commit yourself to understanding and monitoring your credit, so you get the most out of your credit and the most out of your life.
So how much does credit cost you? The answer to that question will go a long way to determining your financial future. At stake is more money than most people imagine, literally tens of thousands of dollars or more over the lifetime of a borrower.
Let's look at an example: On a 30-year home loan of $225,000, a good credit rating could help you qualify for an interest rate of, let's say, 6.465% and a monthly payment of $1,417 with total interest paid of $285,000. A lower credit rating could result in an interest rate of 8.452% and a monthly payment of $1,722 with total interest paid of $395,067. In this example, good credit could help you save more than $110,000 over the life of the loan. Lower interest rates on car loans can also add up to incredible savings, as can lower rates on credit cards, and many other forms of credit. A good credit history and credit score can help you save a lot of money.
Next Lesson: Your Credit Report: The Picture You Present to Lenders
Visit CreditLearningCenter.com.
Click here to Get Your Credit Score, Credit Report and 3-Bureau Credit Monitoring Free For 30 Days.
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