Things You Must Know About Credit

To use a credit correctly, it's important to know as much as you can about it. Here are 10 things you must know about credit if you want to use it the right way.

Credit isn't cash or a cash substitute.

A man and a woman choose from an array of credit cards and dollar banknotes, 1979.
Credit isn't cash or a cash substitute. Alfred Gescheidt / Getty Images

Credit and credit cards are so easy to use, it's hard not to think of them as an extension of your wallet. Unfortunately, that's the exact kind of thinking that can get you into credit trouble. Even if you've been using credit for years, it never hurts to re-familiarize yourself with the very basics of what credit is and how it works. That way you can be sure you're using credit properly.

Having good credit is important.

Many people don't realize the value of good credit until they need it and don't have it. Credit is used for more than just credit cards. You need credit for buying or renting a home, getting a new job, and even for getting cell phone or other utility services. Creditors and lenders can deny you if your credit is not in good shape.

Good credit doesn't happen overnight.

You already know that good credit goes a long way in today's society. Learn what it takes to build the kind of credit history that always gets your applications approved with low interest rates and no security deposit.

There's no one-size-fits-all credit card.

And if there were such a card, it'd fit like one-size-fits-all clothing which is usually not very well at all. Since there are so many different types of credit cards, it's just as easy to get one that doesn't fit you as it is to get one that does fit you. Learn about the many kinds of credit cards that are out there before applying for one.

Debt can happen to anyone, even you.

Too much debt can have a negative influence on your credit, making you look riskier to future lenders. Making sound financial decisions and using credit sparingly will keep you from being bound by debt.

Creditors talk about you behind your back.

Creditors and lenders report your every move to credit bureaus. They share this information with other businesses whenever you make a new application for credit. Your credit information is compiled in a credit report and scored using a credit score.

You can find out what they're saying for free.

Federal law entitles you a free copy of your credit report from each of the three credit bureaus each year. This free credit report doesn't require you to signup for any other products or services, so you have absolutely no obligation.

You can ask for a lower interest rate.

High interest rates make credit expensive. With a good credit score (700's or better) and a good payment history, you're in a good position to negotiate a lower interest rate.

It's possible to have too many credit cards.

It doesn't take long to build a collection of credit cards. As soon as you get one credit card, it seems every other creditor wants to offer theirs too. Having too many credit cards can affect your credit score and make it hard to keep up with your credit card payments.

Closing credit cards can hurt your credit.

When your creditor makes you angry, the first thing you want to do is close your credit card. Before you utter those words ("I want to close my account") know that closing your credit card might hurt you a lot more than it will hurt your creditor.