Credit is not income, and it’s not free money. Think of it as more like a loan with a price tag ― the longer you take to repay it, the higher the price. You can use the money to purchase the items you want, but it has to be paid back later in addition to interest that is added to your account. Remember the idea of compound interest in the “Saving & Investing” wheel? When you use credit, you are paying compound interest rather than earning it. That means you pay interest on the principle plus the interest that is added each month―a double whammy.

So what’s the scoop on credit? Here’s a quick guide to the pros and cons of credit for easy reference.

Pros

Cons

Why do we need credit? As a young adult, establishing a good credit record helps you get lower interest rates on car loans, home loans, and other major purchases. It also can help you avoid disrupting your budget in emergency situations such as an unexpected major car repair or a hospital stay. And if you ever decide to start your own business, chances are you will need to borrow a lot of money to get started. Having a good credit rating can help make dreams of being your own boss a reality.

Did you know that having a good credit rating can be the key to getting a good job? Today, many corporations actually check your credit before they decide to hire you. They believe that good credit shows responsibility, honesty, and discipline. Besides responsible personal use, many businesses want their employees to use a credit card for business-related expenses such as air travel, hotel, and meals. That way, you have an accurate record of your expenses, your company can reimburse you before your bill comes in, and you do not have to spend money out of your pocket.