💳The Basics of Credit

To the Esteemed Members of The Credit Crusaders (a.k.a. Luci Subscribers),

Let’s talk about credit-because whether you’re a newbie to the credit game or just need a refresher, understanding the basics can save you a lot of headaches (and money) down the line. And hey, nobody wants to be the person crying over a maxed-out credit card while eating ramen for the third night in a row.

Why Credit is a Powerful Tool & How to Use it Wisely

Credit isn’t just about borrowing money with the promise of paying it back later. Oh no, it’s way better than that and it impacts everything from buying a car or home to landing a job or securing an apartment. But here’s the kicker: it only works in your favor if you use it correctly. Mess it up, and you could be part of the $1.13 trillion in credit card debt Americans are drowning in right now. Yep, that’s trillion with a ‘T’. ¹ 
That’s a lot of financial facepalms. Let’s make sure you’re not adding to that number, cool?

As Spider-Man’s Uncle Ben says “With great financial superpowers, comes even greater responsibility”. And let’s be honest-this superpower is awesome when used wisely but can turn into a financial dumpster fire when abused.

Understanding Credit Scores and Reports

Credit is more than just credit cards; it reflects your overall borrowing behavior. Your credit score is like the GPA of your life-it sums up how well you manage credit. (ugh, grades-I know, but stick with me!) 

It’s based on factors like:

• Payment history - did you pay your bills on time?

• Credit utilization - how much of your credit limit are you using?

• Credit history length - how long have you been playing this game?

The good news? You can check your credit score and report for free (yes, FREE!) through services like Credit Karma or AnnualCreditReport.com. Quick PSA: Hard credit inquiries (like when you apply for a new card) can temporarily lower your score, so don’t go applying for every card you see. Keeping an eye on your report helps you stay on track and catch any mistakes.

What if You do not have Credit History?

Well, my friend, that’s where credit cards swoop in like a chimichanga-loving superhero. Getting a credit card (and using it responsibly) helps you establish a credit history, build a solid credit score and unlock better financial opportunities. Think of it as upgrading your credit game-except instead of fighting bad guys, you’re fighting high interest rates and shady fees.

A higher credit score means access to better credit cards with lower interest rates, higher limits, and sweet perks like cashback or travel rewards. (Imagine sipping a margarita on a beach because your credit card paid for the flight. You’re welcome.) Plus, it opens doors to bigger financial moves-like getting approved for a mortgage. (Or, my personal favorite a Food Truck)<See Below>.

How Credit Cards Work (And Why They Can be a Game-Changer)

A credit card is essentially a piece of plastic that you can wave around to let people know you’re cool.

Okay, okay-but seriously a credit card is basically a short-term loan. You get a credit limit (the max you can spend), and if you don’t pay your balance in full each month, interest kicks down your door like that one uncle that nobody likes. 

There are two main types of credit cards:

• Secured cards ➡ Usually for people with limited or poor credit history. You put down a cash deposit, and that becomes your credit limit. But watch out-these cards often come with higher interest rates.

• Unsecured cards ➡ The classic credit cards you’re probably familiar with. No deposit required, but you will need a credit history (or a generous cosigner) to qualify.

Ready to Build Credit the Smart Way?

1  Federal Reserve Bank of New York. Americans' credit card debt hits record $1.13 trillion. ABC News, 2024. Link