Welcome to understanding credit! You've probably heard people talk about "good credit" or "bad credit," but what does that actually mean?
Think of credit as your financial reputation. It's how lenders decide whether to trust you with their money.
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What do you think lenders look for before approving someone's loan?
Credit is essentially borrowed money that you promise to pay back later. When you use a credit card or get a loan, you're using credit.
The key word here is "promise" - lenders need to believe you'll actually pay them back.
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Can you think of a time when you borrowed something and had to return it?
Here's why your credit history matters: lenders can't read your mind. They need proof that you're reliable with money.
Your credit history is like a report card showing how well you've handled borrowed money in the past.
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What do you think makes someone look reliable with money?
Your credit history gets built every time you borrow money and either pay it back on time or miss payments.
Each payment (or missed payment) gets recorded and becomes part of your permanent financial record.
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What do you think happens if you miss several payments in a row?
Good credit opens doors: better loan rates, easier apartment rentals, sometimes even job opportunities. Poor credit does the opposite.
The difference can save or cost you thousands of dollars over your lifetime.
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What's one major purchase you might need a loan for someday?
Building good credit starts with making payments on time, every time. Even small amounts matter more than you might think.
The goal isn't to avoid credit entirely - it's to use it responsibly and build a positive track record.
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What's one simple habit you could adopt to start building good credit?
Type
Multiple Choice
Practice Question
Based on what we just learned, what is credit?
A. Free money from banks B. Borrowed money you promise to pay back C. Your savings account balance D. Cash you earn from your job
Suggested Answers
- A
- B - Correct
- C
- D
