The dictionary has a lot of different definitions of credit, but from a financial perspective, it is “the provision of money, goods, or services with the expectation of future payment” (via Merriam-Webster). Basically, credit is buying something and paying for it at a later date.
When you sign up and get accepted for a ‘Credit Card’, you are able to borrow money from the card issuer up to a certain ‘credit limit’ in order to purchase items or withdraw cash. As you spend on your Credit Card, you start to increase your ‘credit balance’ which will collect ‘interest’ (i.e. the percentage of a loan amount that it costs to borrow money) the longer it remains unpaid.
While you spend on your Credit Card (hopefully keeping a low balance under 30% of your credit limit, aka ‘credit utilization’) and pay off the minimum or full balance, you begin building your ‘credit score’ (i.e. a score assigned to an individual that indicates to lenders their trustworthiness to repay a loan).
Along with a Credit Card, there are other lines of credit, such as Installment Loans (like student loans, auto loans, etc.) or Mortgages (i.e. having interest in using a property as collateral for the repayment of borrowing money), that you will come across as you grow you credit history.
How is that different from debit?
Debit is defined as “a charge against a bank deposit account” (via Merriam-Webster). A ‘Debit Card’ allows a bank customers to spend money by using their own personal funds that they deposited with the card provider.
For most Debit Cards, the account that you use to store money, withdraw or deposit money to is called your ‘checking account’. This is a separate account from a ‘savings account’ that have different steps to move money in and out of and usually accrue interest (which is different from credit interest because it is earning money for storing it in the bank).
For those individuals that don’t have a bank debit account, they can use Prepaid Debit Cards to make electronic purchases up to the amount that was paid in.
If you’re interested in learning more, check out these blogs on “When should I use my Credit Card? and “Why should I use my Debit Card?”
If you’re ready to start building credit, Curu is here to help!
Sign up for Curu at curu.app or download on iPhone.
Once you sign up, Curu will automatically find the best credit card(s) for you using CardMatch™. From there, Curu will make sure you’re on the best path to credit score success by notifying you of any opportunities to properly build and improve your credit score.
If you have any credit related questions or want help with signing up for your first credit card, reach out to our customer success team at support@curucredit.com!
