Credit facts for kids
When you borrow something, like money, from someone else, credit is the trust that you will pay it back later. This idea is often used when someone borrows money from a bank. This type of borrowing is called a loan. A bank might not give someone credit if they don't think that person will pay the loan back.
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Understanding Credit and Loans
Credit is like a promise. When a bank or a store gives you credit, they are trusting that you will pay them back. This is super important for big purchases, like buying a house or a car, because most people don't have all that money right away.
What is a Loan?
A loan is when you borrow money from a bank or another lender. You agree to pay back the money you borrowed, plus a little extra money called interest. Interest is like a fee for borrowing the money. Loans help people buy things they need now and pay for them over time.
Why Banks Check Your Credit
Banks want to make sure they will get their money back. So, before they give you a loan or a credit card, they check your "credit history." This history shows how well you've managed money in the past, like if you've paid bills on time. A good credit history shows you are trustworthy with money.
Credit Cards Explained
A bank or a credit union can give you a credit card. This is a special card you can use to buy things instead of using cash. When you use a credit card, the bank pays the store for you. Then, you owe that money to the bank.
How Credit Cards Work
Credit cards are given based on the trust that you will pay the bank or credit union back. Each month, the bank sends you a bill for what you've spent. You need to pay at least a small part of that bill. If you don't pay the full amount, you'll usually pay interest on the money you still owe. Using credit cards wisely, by paying your bills on time, helps you build a good credit history.
Images for kids
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A credit card is a common way to use credit. You can borrow money for purchases.
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Domestic credit given to private businesses in 2005.
