7. The Bottom Line of Borrowing

💳What Is Borrowing?

Borrowing is when you use someone else’s money (usually from a lender like a bank) and agree to pay it back—usually with interest. Borrowing helps you make big purchases, but it also creates debt.

📈Credit Score (FICO Score)

• A number that shows how trustworthy you are with borrowing money.

• Ranges from 300 to 850
  

  • Higher score = better credit = easier to get loans and lower interest rates.

What Affects Your Credit Score:

• Payment history (do you pay on time?)

• Amount of debt

• Length of credit history

• Types of credit used

• New credit/inquiries

💰APR (Annual Percentage Rate)

• The true yearly cost of borrowing money, including interest and fees.

• The lower the APR, the less you pay overall.

🏦Types of Loans

• Auto Loan – Used to buy a car

• Student Loan – Used for college expenses

• Mortgage – Used to buy a home

• Personal Loan – Used for various personal needs (vacation, emergency, etc.)

🔄Types of Credit

• Installment Credit – Borrow a fixed amount and repay it in equal payments over time
  

  • Example: Car loan, mortgage

• Revolving Credit – Borrow up to a set limit, repay what you use, and borrow again
  

  • Example: Credit card

⚠Risks of Borrowing

• If you borrow more than you can repay:
  

  • You can fall into debt

  • Your credit score drops

  • You may pay more in interest over time

  • You could face late fees, collections, or even bankruptcy