he temptation to spend and borrow money is everywhere. Most people who use credit don't always have a clear idea of how it works or how getting in too much debt can lead to serious financial problems.

The more you know about credit, the more opportunity you have to achieve your goals and enjoy financial stability.

Have you ever loaned someone money? Did the person pay you back in a reasonable amount of time? If not, would you be willing to loan that person money again? These are the questions creditors ask every time you apply for a loan or a credit card.

Credit is a privilege, not a right. It allows you to borrow tomorrow's money to pay for something you get today.When you use credit to buy something, such as a car, what you're really doing is promising to repay a debt. Another way to look at it is that you're spending your future income now.

Credit is granted several ways such as credit cards, personal loans, car loans and home mortgages. The terms of your repayment include interest. The interest on credit is usually expressed as an annual percentage rate (APR). The APR usually appears in the credit terms on the credit application and takes into consideration how long it will take you to pay back the loan. This rate can range from a few percentage points to well over 20%. The lower the interest rate, the less money you will spend repaying your debt. The higher your credit score, the lower the interest rate you will be charged. As a member of Our Smart Credit Report®, you have the option of requesting a lower interest rate with your creditors.

It is important to understand the difference between the APR and your monthly payment. Your monthly payment is composed of two things:

1. A portion of the original amount of the loan.
2. A portion of the APR.

This means your monthly payment might be reasonable, but if the APR is very high, it will cost you more and take you longer to pay off the debt. Most loans are structured so that you pay off the interest first, then you pay off the principal or original debt. So, when the APR is high, your interest rate is likely to be high; and there may be extra fees, all of which means you spend more time - and more money - paying off the debt. When comparing loans, be sure to look at the APR. The lower the rate, the better.

Good credit terms and interest rates are earned. The best way to earn them is to have a stable income and show creditors that you are willing and able to repay borrowed funds as promised.

Your credit history shows how you've managed your finances and repaid your debts over time. The history is pulled together into a credit report by three companies: Equifax, Experian and Trans Union. These companies sell your credit report to banks and other creditors so they can review your past credit history.

It's important that you look at your credit reports from each of these three companies to make sure they are correct. Your credit report, and credit score, may vary from one company to another.

Your credit report includes these items:

• A list of debts, such as credit cards and car loans, as well as a history of how you paid the debts.
• Any bills that have been referred to a collection agency, including items such as phone, utilities, and medical bills.
• Public record information, such as tax liens or bankruptcies, even if these occurred several years ago.
• Inquiries made about your creditworthiness (an inquiry is made when you request credit; many times your report also shows whether you were extended credit based upon the inquiry).

From the moment you first apply for a loan or a credit card, you have a credit history. Your current debts, paid debts, and how you've paid your debts are all recorded in your credit report. That's why it's crucial for you to establish and maintain a good credit history. It's also important that you make sure each creditor is engaged in full-file credit reporting so that your timely payments are recorded. This is a way to improve your credit. If you are a member of Our Smart Credit Report®, you can correspond directly with your creditors if you see that they have reported an error.

Just as you feel better about loaning money again to a friend who paid you back quickly the first time, your good credit history increases the confidence of your creditors.With a good credit history, you can borrow more money at a lower cost.