establish credit by repaying a loan from a bank or a credit union according to the loan agreement. Making these payments according to their agreements means that you pay the amount agreed upon by a certain date. You can then use these companies, banks, or credit unions as credit references if you apply for credit at any future time. Use of Credit by Navy Personnel The Navy expects all its members to discharge their financial responsibilities in a timely manner. The Navy expects its members to be a credit to themselves and the naval  service.  Knowing  about  credit  lets  you  handle your financial affairs better and often saves you money. If   Navy  personnel  are  to  use  credit  wisely,  they need to know the cost of credit. They especially need to know how to avoid some of the problems young Navy men and women often have. Credit  plays  an  important  part  in  the  financial world. Use it wisely and carefully, and pay attention to the following principles: Use  credit  for  those  necessary  goods  that  you can’t afford with one or two paychecks. Use credit mainly for goods that have a useful life longer than the time needed to pay for them. Make as large a down payment as possible. This reduces  the  total  amount  spent  because  of interest charges. Know what your income will be. Set a spending limit equal to the smallest paycheck received to be  sure  of  having  enough  money  to  meet  the payment when due. Don’t  buy  another  item  on  credit  just  because you have finished paying for one. Avoid the temptation to use credit for splurging. For  example,  buying  too  much  on  credit  at Christmas becomes a shock in January when you receive the bills. Check with consumer affairs offices about local credit  regulations.  For  example,  some  states allow  up  to  3  days  to  change  your  mind  on  a credit purchase or a loan received. When  using  credit,  remember  the  following  facts about credit: Credit costs money, but many credit plans exist. Some plans are much less expensive than others. When you buy a car or furniture, you shop for the best bargain. Do the same when you shop for the best bargain in credit. Consider  carefully  before  borrowing  from finance  companies.  These  companies  often charge high interest rates on loans. The  faster  you  pay  off  a  debt,  the  less  interest charges you’ll pay. Use credit only for unforeseen emergencies and for higher-cost purchases, such as furniture, cars, or houses. While  buying  on  credit  has  advantages,  you  also need to recognize some of the disadvantages of using credit. The following are some of the problems you may encounter: Credit customers may overbuy. Credit customers may buy at the wrong time or place. Credit prices may be higher than cash prices. Credit ties up future income. Payments must be made on time. Because of the addition of interest charges to the price, the purchase costs more. REVIEW 2 QUESTIONS Q1.   What is the safest and most convenient way to keep track of the money you spend? 17-14 Student Notes: