Credit is borrowed money — a tool that can build or destroy wealth depending on how you use it. Your credit score is the number that determines your borrowing cost for life.
Credit is an agreement to receive money or goods now and pay later. Types: credit cards (revolving), auto loans, student loans, mortgages. The lender charges interest for this service.
Ranges 300–850. Components: Payment history 35%, Amounts owed 30%, Length of history 15%, New credit 10%, Credit mix 10%. A score above 740 gets the best rates.
APR = Annual Percentage Rate. If you carry a $1,000 balance at 20% APR: monthly interest = $1,000 × (0.20/12) ≈ $16.67. Always pay the full balance to avoid interest.
Good debt has low interest and builds wealth (mortgage, student loans at reasonable rates). Bad debt has high interest and depreciates (credit card debt, payday loans). Payday loans can have APRs over 400%.
Q1: Which factor has the LARGEST weight in your FICO credit score?
Q2: You carry a $2,000 balance at 18% APR. Monthly interest ≈
Q3: A payday loan with 400% APR is an example of: