{"id":115,"date":"2016-07-18T01:28:35","date_gmt":"2016-07-18T01:28:35","guid":{"rendered":"https:\/\/financialaid.syr.edu\/ofl\/?page_id=115"},"modified":"2021-12-20T17:43:11","modified_gmt":"2021-12-20T17:43:11","slug":"buying","status":"publish","type":"page","link":"https:\/\/financialaid.syr.edu\/financialliteracy\/financial-basics\/buying\/","title":{"rendered":"Don’t Buy Stuff You Cannot Afford"},"content":{"rendered":"

Understanding debt, and how\u00a0or when to use it,\u00a0is one\u00a0of the biggest challenges for consumers. As you build your personal financial strategy, it is wise to educate yourself on borrowing basics and common credit pitfalls.<\/p>\n

Understanding Credit<\/h2>\n

Understanding credit cards and credit scores is essential to\u00a0establishing credit and using credit cards wisely. Your ability to get\u00a0a loan for larger purchases (houses or cars) generally depends on your credit score, which is made up of different factors that show lenders your track record with debt. Remember, you pay interest on borrowed, or credited funds.\u00a0The longer you take to pay back the money you borrowed, the more interest you will pay to your lender.<\/p>\n

To Borrow or Not To Borrow<\/h3>\n

The first thing you should determine is whether or not your budget supports your\u00a0ability to pay your credit card bill in full and on-time. If not, establish a budget and control your spending before opening any lines of credit.\u00a0Keep the following tips from the National Consumer Law Center in mind to avoid credit card problems:<\/p>\n

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  1. Do not use credit cards to finance an unaffordable lifestyle.<\/li>\n
  2. If you get into financial trouble, try to avoid making it worse by using credit cards to make ends meet.<\/li>\n
  3. Don’t get hooked on minimum payments.<\/li>\n
  4. Don’t run up the balance in reliance on temporary “teaser” interest rates.<\/li>\n
  5. Make your credit card payments on time.<\/li>\n
  6. Beware of unsolicited increases by a credit card lender to your credit card limit.<\/li>\n
  7. Don’t max out.<\/li>\n<\/ol>\n

    Picking a Card<\/h3>\n

    Debit Cards vs. Credit Cards<\/em> – A debit card is linked directly to your checking account, and it requires available funds to make purchases. A credit card is linked to a line of credit, which a lender has extended to you. Using credit cards build a credit history, while using debit cards does not.<\/p>\n

    General vs. Private<\/em> – General purpose credit cards can be used anywhere, while private label retail cards can generally only be used at the retailer that issued them.<\/p>\n

    Secured vs. Unsecured<\/em> – Most general use credit cards are unsecured. This means that the issuer extended you a line of credit based on your credit history, with nothing used as collateral in the event that you stop making payments. Conversely, secured cards are backed by funds you deposit in an account that the lender can claim if you default. Secured cards can help you establish credit if your activity is being reported to credit bureaus.<\/p>\n

    Understand Your Interest Rate<\/em> – Interest rates on credit cards vary dramatically. To set your Annual Percentage Rate (APR), creditors can\u00a0look at your credit score, income, assets, debt load, inquiries, and payment history. Consumers with a positive history in these categories are more likely to receive lower interest rates.<\/p>\n

    Establishing Credit and Score<\/h3>\n

    As creditors determine the risk associated with lending to you, they will reference your credit score. The FICO score is a commonly used number, and is made up of five categories:<\/p>\n

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    1. Amounts Owed – 30%<\/li>\n
    2. Payment History – 35%<\/li>\n
    3. Length of Credit History – 15%<\/li>\n
    4. New Credit – 10%<\/li>\n
    5. Credit Mix – 10%<\/li>\n<\/ol>\n

      According to myFICO.com, the minimum requirements for a FICO score are that a credit report must have:<\/p>\n