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The Basics of Using Credit

Amber Cannon is a Momentum volunteer and participant. Here she shares what she discovered about credit.

Who, really, wants to talk about, let alone think about their credit?
Certainly not I.
But in today’s society, credit is a must have.
On this session of my Savings Circles program I learned that credit can be unsecured or secured.
Unsecured being: You do not have to offer any security (deposit or collateral) before you can use this type of credit. Examples being credit cards and store credit cards.
Secured being: You must offer some security or collateral before you can access this type of credit. Mortgages, utilities being examples of these.
So, why would you need credit? Well, for examples, credit can be used for:

  1. Investing
  2. Buying now and paying later.
  3. Large purchases, e.g. car, education.
  4. Shopping online.

If not used responsibly it can effect debt build up, high interest rates and service charges, risk of bad credit, bankruptcy, and personal and/or relationship stress.
What is the importance of credit?
It’s an asset! Some employers, landlords, utility companies need proof that you have a good credit rating.
A credit report sums up your credit history and is included in the calculation of your credit score.
The biggest thing that many people don’t know are the credit history situations. THIS IS IMPORTANT TO NOTE.

  • Too many applications—EVERY TIME you apply for a loan, credit card or store card, you fill out an application form. The company then forwards your information to the credit bureau and they update your file as an inquiry. if you have too many inquiries on your file, you may look desperate for credit and be considered a credit risk.
  • Pre-approved credit—Even if a credit card application sent to you in the mail suggests that you have been pre-approved, DO NOT take that for granted. A credit check WILL be done if you complete and send in the application form.
  • High debt capacity—EACH time you are accepted for credit, you increase your potential to carry debt. A large capacity for debt could mean that you may be declined credit when you REALLY need it.

Think about your minimum payments.
If you owe $1,000.00 on your credit card. And you have an interest rate of 21% on the card, and ONLY made your minimum payments each month. The interest you would pay is $1,104.63, the total you would pay is $2, 104.63, and it would take you 11 years and 6 months to pay that off!!
Steer clear of high-cost credit places.
Also stay away from payday loans. This is a trap into a cycle of debt where you are always running out of money before your next cheque arrives.
There is a part two to this story, which will come later this week, I just wanted to focus on the main basics for now.
Credit Canada has a great credit calculator.
If you would like to know more about Momentum Calgary and the programs and services it offers, please visit: http://www.momentum.org/

For more of Amber’s experience living in poverty in one of Canada’s wealthiest cities, check out her blog: https://simplecalgarian.blogspot.ca/
To learn how to manage your credit, join us for free Money Management workshops on Monday evenings or Tuesday afternoons. View the upcoming schedule and register online.

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