(BPT) - Financial Literacy Month is celebrated in April and is a great time to make sure you have the knowledge and tools you need to manage your personal finances, budget, and invest. By getting to know your finances, and understanding credit terminology, you’ll have the power to make healthy financial decisions.
“Understanding finance and credit jargon in addition to your individual spending habits can make a huge impact on your life,” said Christian Joseph, CEO and co-founder of Grain, a fintech company that offers an alternative to the traditional credit card. “It’s never too late to start learning or just brush up on credit topics and how it affects you buying a home, car or other large purchases.”
Read on to learn about basic terms, credit’s impact, and how you can start your journey to financial wellness.
To be credit literate, you’ll need to become familiar with some basic credit card vocabulary.
Interest rate: The price you pay for borrowing money. For credit cards, you'll be charged interest if you don't pay the balance by your monthly due date. The interest rate is usually a percentage of the total amount borrowed. That percentage is determined by the credit card or loans APR (see below).
Annual Percentage Rate (APR): The interest you pay on a loan over the course of a year. APR is an important factor you should consider when choosing a credit card. Generally speaking, credit card applicants with higher credit scores are offered lower APRs.
Revolving credit: Credit that is renewed as you pay off your debt. With a revolving credit line, you can withdraw money from your credit line, use it, pay it back and once again be able to use your full line of credit without going through another loan approval process.
Credit bureau: An organization that gathers the data in your credit report based on information from creditors, financial institutions, public records and businesses.
Credit’s impact on your life
Now that you know some basic credit vocabulary, you can begin to understand the importance of it and how to utilize it for large purchases. To buy a home, you’ll need to apply for a mortgage, and your mortgage interest rate is tied to your credit score. According to NerdWallet, lenders want to lend to people who have a strong credit record and make on-time payments. To get the lowest mortgage rate possible and save money, you’ll need to have a high credit score. The average mortgage term is 30 years, so you’ll want to make sure you get a good rate for such a long-term financial commitment.
Credit also affects your ability to buy an engagement ring for your sweetheart. In 2021, the average cost of an engagement ring was $6,000. You probably don’t have that kind of cash just lying around, so you’ll want to finance this special gift. If you plan to pay for an engagement ring with a personal loan or credit card, your credit history once again will determine how much you’ll eventually pay with interest rates.
Credit also impacts your ability to:
- Purchase a car
- Rent an apartment
- Set up utilities accounts for your home (water, power, disposal, heating, etc.)
- Secure insurance quotes (higher credit is more favorable and can result in competitive insurance rates offered)
- Secure better interest rates on loans
These are just a few ways credit plays a huge role in your life. No credit or a low credit score can become a barrier to your life plans, which is why it’s important to start thinking about your credit now.
Take control of your credit
While getting credit approval can sometimes be challenging, it's not always the case so it shouldn’t keep you from achieving your life goals. Consider non-traditional credit lines to take control of your spending; by providing access to credit through your existing checking account, Grain helps to not overextend on spending by providing a line of credit directly through your checking account based on your cash flow, not your credit score. It’s time to change the way we think about credit and manage our credit more responsibly.
To learn more about Grain, visit TryGrain.com.