The Power of Financial Literacy
Whether starting with no financial knowledge or as a master at balancing your checkbook regularly, it’s your responsibility to understand financial changes that occur in your life.
- What is financial literacy: the understanding of concepts like saving, investing and debt that lead to an overall sense of financial well-being and self-trust.
- How to use it: allocating your income toward various goals like securing loans, paying off credit cards, and exploring investment opportunities.
- Why is it important: financial literacy will help you know how to prioritize your goals and track your progress.
The Power of Credit
One of the central reasons to build financial literacy is to grow and protect your credit score, which is a super important part of your financial life. Credit often helps you qualify for lower interest rates on loans and credit cards with money-saving perks!
- What Is Credit: credit is the ability to borrow money or make purchases you pay for later—usually with interest.
- When to use it: often used to get something you can’t afford to pay for all at once. You can also use credit for smaller purchases, such as clothing.
- How it works: once approved for credit, lenders want to make sure they can trust you to repay them on the agreed upon timeframe. To do that, they check your credit report and credit score (a three-digit number ranging from 0 – 800+).
- Credit Report: a credit report is a history of how you’ve used credit in the past. Having good credit means you’ve established a strong track record of managing your debts and paying them back. This good track record means a good credit score, which can make it easier for you to be approved for loans, and other credit products.
- Credit Score: a three-digit number ranging from 0 – 800+. It provides a snapshot by using algorithms to analyze the information found in your credit reports and convert it into a simple score. According to Experian, for a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered excellent.
- When to check credit report The Consumer Financial Protection Bureau suggests checking your credit reports once a year, at a minimum.
AAA Sidekick Tip: ProtectMyID allows you to receive your free credit report upon enrollment as a AAA member benefit. Check it out here!
The Power of Credit Cards:
Credit cards can be convenient when cash isn’t available and provide an added layer of protection and rewards or financing. But they may also tempt you to overspend, charge variable interest rates that are typically higher than you’d pay with a loan, and often have late fees or penalty interest rates.
- What they are: a credit card is a form of payment that is backed by a financial institution like a bank. You can use the pre-approved limit to make purchases and repay the borrowed amount with interest each month within your billing cycle.
- Why are they important: credit cards function on a deferred payment basis, which means you get to use your card now and pay for your purchases later. The money used does not go out of your account, so you don’t dent your balance every time you swipe.
- How to use them: credit cards can have many advantages including safety, convivence, discounts, rewards, savings, or even emergencies.
- When to apply: the best time to apply for a credit card depends more on your financial situation than the time of year. Getting the timing right on your credit card application may increase your chances of approval while reducing the impact on your credit score. If you’ve got good to excellent credit, pre-approved, or even want to build your credit profile, understanding the impacts, when to apply, and the right credit card can maximize your financial literacy at this adulting stage.
- Adulting in the world of credit is easy when you enroll in Experian’s Credit College: A Beginner’s Guide to Credit.
AAA Sidekick Tip: AAA Credit Card Program – The AAA Credit Cards offer rewards on daily purchases! Learn more here or at your local AAA Club!