Credit can be a great tool, but it can also lead to problems if someone takes on too much debt, especially early on in life. In this episode of Cash Course, your middle and high school students will find out what credit is, what makes it “good” or “bad,” and how to build great credit for themselves in the future.
Cash Course is a fun and educational show highlighting the importance of money management and financial literacy for grades 6+.
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did you know that over 60 percent of
Americans have not fully paid for their
homes the average cost of a home is over
four hundred thousand dollars and not
very many people have that much money
saved up
so how do they buy it they buy it with
credit
is the measure of trust the bank or
store gives to a customer for future
payment of the money that they borrow
for the goods they purchase now usually
the best rule for spending is don't
spend more money than you have right now
but there are some things you will want
or need that are just too expensive to
pay for all at once and you might have
to rely on credit to make the purchase
credit is like an IOU it allows you to
buy something on the promise that you
will pay for it little by little over
time instead of all at once
but sellers won't simply give their
product to you based on your promise
someone has to pay them now maybe it's
the bank or credit card company but when
you use credit you are essentially
borrowing all the money from someone to
pay the seller for what you buy this
borrowed money is called a loan and the
person or business that you borrowed it
from is called A lender
when you take out a loan or buy on
credit you owe the lender that money
they will keep track of this debt and
how reliable you are at making your
payments if you pay that money back on
time and in the amount you agreed to you
will have good credit if not you will
have bad credit and you will be in
trouble oh
there are banking organizations that
collect this information about you and
give you a credit score from 300 to 850
the higher your score is the better your
credit is
the average American has a score of 697
which is pretty good if you can score
over 750 then you're doing very well but
if you get down into the 500s or below
by not paying your bill on time lenders
will not loan you money and you should
start looking for ways to improve your
score
think of credit as your reputation when
it comes to paying back money that you
borrowed if someone is thinking about
lending you money they're going to ask
themselves can I trust this person to
pay me back do they have a good
reputation or a bad reputation your
credit score will tell them the answer
it's the first thing A lender will want
to investigate about you when you ask
for a loan so your credit score can make
or break your big purchase plans
having good or bad credit will affect
many things you want to do in the future
but I'm not ready to take out a big loan
yet
don't worry there are ways to start
building good credit with small
transactions one thing you can do is get
a credit card and use it to make regular
small purchases as long as you have a
plan to earn the money to pay the credit
card bills
check your budget to see how much money
you'll have available when the bill is
due and don't spend more than that
amount then when the bill comes due
you'll be able to make your payment on
time and pay off the full amount this
will show lenders that you're a reliable
borrower so in the future when you need
a big loan you'll be trusted
every time you pay your credit card bill
on time and in full your reputation gets
better and your credit score goes up but
be careful it's very easy and tempting
to buy expensive things that you don't
need with your credit card things that
you won't have enough money to
completely pay off for a long time
remember a credit card is essentially a
short-term loan that is subject to
interest charges if you end up owing
more than you can afford to pay back and
you don't keep up with your payments
your financial reputation will get worse
and your credit score will go down
when you're stuck in debt like that most
of the money that you earn will go to
pay for the old things that you already
bought and not new things
and that sounds miserable
it takes a lot of work to build your
credit score back up once it's gotten
too low so it's best to keep it from
getting low in the first place
so even though credit is most important
when it comes to big decisions in your
future it's never too early to start
thinking about it and working on earning
a good Financial reputation
establishing smart credit habits now is
the best way to ensure that lenders will
trust you when it's time to ask for a
loan just remember start small be
responsible and you'll find that credit
doesn't have to be intimidating it can
open up a lot of opportunities that will
make life much better for you
foreign
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