Money Mondays: What is Credit?

Going back to work or working for the first time is a great step toward financial independence. When you’re setting employment goals, you may also have questions about managing money. In our monthly Money Mondays blog series, we’ll offer information, tips and resources for you to use on that journey.

Today’s blog post explains what credit is and how it might affect you as you search for a job.

Credit Basics

Credit is your ability to get goods (things like clothing, food, and computers) or services (cable television, internet access or vehicle repairs, for example) before you pay for them. Having good credit means banks and sellers trust you to make payment for those goods or services in the future.

As you think about joining or rejoining the workforce, consider the effect credit can have on your job search. You may find that you need to purchase a car to make getting to and from work easier; or as you start earning more money, you may want to look for an apartment or house closer to your job. If you haven’t started working yet, you may want to pay for tuition or training to prepare yourself for a job or career.

How you pay for these expenses can help you establish credit. If you already have a credit history, your current credit score may affect your ability to buy what you need. Some employers also consider your credit score when they are making hiring decisions.

Your Credit Score

As you begin your job search, you may want to find out your credit score. Credit scores range from 300 to 850. The higher your score, the better! Scores are based on the “Four Cs” of credit:

• Character – the likelihood you will repay your debt
• Capacity – your ability to repay your debt
• Capital – the savings you have available to pay for the debt
• Collateral – Property you own that can be promised as repayment. In the event that you are unable to pay back the debt, this property is given to repay the debt.

This information offers lenders, employers, and others a snapshot of your financial health. It can affect your ability to rent an apartment, or take out a loan and, in some cases, get a job. Employers want to know you have a history of making good financial decisions. You can check your credit score free at www.creditkarma.com. Also, remember to check your credit report. Your credit score will give you a single number and your credit report will include information about your debt.  You can check your credit report for free once a year at www.annualcreditreport.com. Through this site, you can access three credit-reporting agencies: TransUnion, Equifax and Experian. Each company will provide you with one free report each year.

Find Out More about Credit!

If you’d like to learn more about credit, check out the Consumer Financial Protection Bureau Q&A on credit cards.

Next month, our Money Mondays blog post will cover how to establish or strengthen your credit as you journey toward financial independence.