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What’s credit – and how can it help me achieve my financial goals?

Credit Score Concept on Laptop
What is credit? (Source: Getty) (tolgart via Getty Images)

So you’ve most probably heard of a credit card (god bless you, Rewards points), you’ve heard of a mortgage (damn you, rising house prices) and you’ve heard of a car loan.

These are all very common types of what we call ‘credit’.

In Week 1 of the 6-Week Bootcamp: Clean Up Your Credit Score, we’ll kick off with the basic information about credit so you’re set up with everything you need to know.

Then in the next few weeks, we’ll dig a little deeper to help you get your credit score in better shape.

First things first: What actually is credit?

Let’s take one step back.

Credit allows you to borrow money so that you can buy something now and pay for it later. Kinda sounds familiar huh?


It basically means that you’re not spending your own money, you’re spending someone else’s money (*cough* your bank or lender).

But unfortunately nothing in life comes for you’ll need to pay the lender back over time, often with interest.

Okay, so credit isn’t my own money…

Spot on. Credit is money that your bank or financial institution lends you, with the understanding that you’re going to pay it back later. It can be things like:

  • A home loan

  • A credit card

  • A HECS loan

  • A personal loan.

How can credit help me achieve my financial goals?

We’ve all got different financial goals right now. And sometimes, we may not have the money in our bank accounts to achieve those goals.

This is where credit can come in handy.

However, it’s important to always weigh up whether using credit is the right path to achieving your financial goal.

For example, using ‘credit’ to buy a home is one of the most common ways to achieve a financial goal – this credit is called a ‘home loan’. Not all of us can pay for our houses in cold, hard cash like Justin Bieber.

Or, if you want to go to uni, but can’t afford to pay the fees upfront (who the hell can?!), a HECS loan will help you get your degree. Again, this is a loan from the government so that you can learn today, but pay back the loan later (once you’re rolling in the cash!).

On the other hand, using credit to pay for things that generally don’t appreciate in value (like new clothes or a holiday) may not always be the right financial decision.

What do I need to know before I apply for credit?

Credit can be exciting. But when those repayments roll ain’t all glitz and glamour.

Before you apply for credit, you should ask yourself questions like:

  • Can I afford to make the repayments on this debt? And can I still afford to pay my rent, bills, food and save some money for enjoying life?

  • Do I really need this money right now, or can I save up to achieve my financial goal instead?

  • Will making my repayments stop me from saving money for other future goals?

Can applying for credit affect my credit score?

You also need to know that making an application for credit will affect your credit score.

Often applying for credit alone isn’t a sign of irresponsible borrowing. However, applying for too much credit in a short period of time, or failing to meet your repayments, is.

And if you seem like an irresponsible borrower, lenders will take note of that, and it could be tougher for you to get access to finance when you need it.

THE CHALLENGE: Check your credit score!

  1. You can do this multiple ways. One is via the Flux App which you can download with this link!

  2. Click the ‘credit health’ tab

  3. Click ‘let’s do it’

  4. Follow the prompts! You’ll be asked to provide some details like your full name, date of birth, address and driver’s licence (DW, we use bank-grade encryption)

  5. Ta-da! Once you consent to us retrieving your score, it will appear in a few seconds.

Hot tip: Scroll down and check out the ‘what is impacting my score’ feature. We can tell you what’s happening and what’s hurting your score, so you can get on your way to improving it.

The guidance and suggestions provided in Yahoo Finance's 6-Week Financial Bootcamp are of an informational nature only, and are not intended to constitute financial advice. You should make your own enquiries as to whether the 6 Week Financial Bootcamp is suitable for your own personal circumstances. Yahoo Finance does not guarantee any particular outcome arising out of your participation in the 6 Week Financial Bootcamp.

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