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Empowerment Series: Understanding Credit and Debit

For people with disabilities, it is important to understand the difference between using credit or debit for purchases. The main difference between the two are:

  • A debit card is linked to your bank account. The amount of money in your bank account is the same amount on your debit card. When you use your debit card to pay for a purchase online or at the store, the money automatically comes out of your bank account.
  • A credit card is not linked to your bank account. Instead, a credit card is used to pay for purchases with credit. This means that you are borrowing money from the credit card company to pay for the purchase. When you make a purchase with a credit card, you are making a promise to pay back the credit card company. Until you pay back the purchase, the amount you borrowed, plus fees and interest, is referred to as your credit card balance, AKA debt.

Applying For and Using Credit is called Establishing Credit

People with disabilities who want to rent an apartment or make a large purchase may need to establish credit. That is why it is important to understand how credit works.

To apply for credit, you need to fill out an application that includes information about you, such as employment information, your address, and your social security number. If you are approved, you will receive a credit card.

Your card will have a credit limit. If the credit limit is $500, you can borrow up to $500 from the credit card company at a time. That doesn’t mean you should just use the card for everything. The longer you take to pay back your debt, the more you will end up paying the company in interest and fees. It’s best to pay your entire balance every billing cycle. If you can’t do that, at least pay the minimum amount due as shown on your bill.

Credit Scores, Housing, and Transportation

Using credit wisely will help you maintain a good credit score. This is important because if you want to rent an apartment, the landlord will most likely check your score to determine whether or not he thinks you can pay the rent. The same is true if you are applying for a mortgage to buy a house, applying for an auto loan to buy a car, and so on.

When you have a good credit score, you might end up paying less for housing or transportation in the long run. This is because loan officers give you lower interest rates if they think you will pay your debt on time. You get a better deal if your credit score shows you can manage your debts. You get a worse deal if you have a low credit score.

Thankfully, you can improve your credit score pretty quickly, because the reporting agencies give you a new score every month. The score is based on the number of accounts you have, how much of your balance you’ve paid off, and how long you’ve had your credit accounts. Having a few accounts for a long time is better than having a lot of accounts for a short time.

Acumen‘s expert fiscal agents are dedicated to assisting and informing those with disabilities on money management. Talk to a fiscal agent today.