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We have discussed credit evaluations, credit reports, and credit scores. Understanding how these matters impact you is critical, especially if you are looking to buy a house. Your credit score not only influences how much you will pay for a mortgage (or other types of credit), but it influences your insurance costs as well.

There are appropriate uses for credit cards, and they can be useful in helping you attain your personal goals. Credit cards can be used for emergencies, reservations, convenience, cash flow, and free services.

There are several drawbacks to having a credit card. When you have a credit card, you are more likely to spend more, lose track of spending since it is harder to track credit card spending, pay higher interest rates and fees, and obligate future income. You need to be very careful if you use credit cards.

Credit cards are unique financial instruments, and it is important that you know how they work. Before you apply for a credit card, consider the interest cost (or APR), compounding period, balance calculation method, costs for cash advances, and grace period. Depending on the reasons behind why you use credit cards, you are either a credit user, one who uses the card for borrowing; a convenience user, one who uses the card only for convenience; or both a credit and a convenience user.

Open credit can be either good or bad, depending on how you use it. The five keys to managing your open credit are:

  1. Reduce your balance.
  2. Protect yourself against fraud.
  3. Be aware of signs of trouble in credit card spending.
  4. Control your spending.
  5. Know what to do if you cannot pay your credit card bills.

Understanding credit and using credit wisely are important parts of the modern financial world.


The purpose of this section was to help you better understand credit reports and credit cards. Ask yourself the following four questions about this section’s objectives:

  1. Do you understand credit evaluations, credit reports, and credit scores?
  2. Can you identify appropriate uses for credit cards and explain how to use them to achieve your financial goals?
  3. Can you explain how credit cards work and the costs involved in using credit cards?
  4. Do you understand how to wisely manage your credit cards and other forms of open credit?


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