I would suggest, first, that you find more, and more varied, credible sources than Utube videos, on something this important. I have listed a few different sources (one of which is a bank) that taken together will answer most of your questions.

HowStuffWorks "How Credit Cards Work"

How Credit Cards Work

How Do Credit Cards Work - How Credit Limits Work - Using Credit Cards Wisely

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CollegeData - College Buzz - Credit Card Basics

Bear in mind that recent new laws protecting consumers may not be reflected in these articles.

To the best of my knowledge, you cannot get a credit card in most states until you are 18, and I am not sure about a prepaid card. It might be a wise move to ask your school counselor about the availability of elective classes that cover the area of personal finance.

Regards,
John

I don't like credit cards, spending money that you've not necessarily got or earned yet. I don't see the point of it especially as most end up in financial trouble and in debt.

What is Credit?

As far as I understand credit, credit is essentially your track record that proves to a lender that you will pay it back. Case in point, suppose you want to borrow $400 from me to buy a Xbox 360. You do not have the money, but you want it real bad. You have a job that pays a moderately, maybe $100 a month, but still, you want that Xbox 360 bad and you can't wait four months to save up and buy it outright. Desperate, you come to me, the lender, to borrow the money. We never met before, but you know that you can borrow money from me because your other friends have borrowed from me before and I seem like a reputable guy.

Borrowing from a lender.interest on the loan so that I can make my money from lending it to you. Never never NEVER think that credit is out-of-the-air money... it not only exists, but it is five times more dangerous than "regular" money.

Dealing with the Lender.

Now you come to me wanting to borrow the $400 for the Xbox 360. I need to know that you are going to be able to pay me back the money. I see that you have a job that pays $100 a month, which, for all intents and purposes, shows me that you at least have some definite way of paying me back the money. But you have never borrowed money from anyone before, which I immediately see as a red flag. You could run off with my money. I could (primarily) do three things in order to lend you the money.

1)I could refuse you out right, no credit, no service. I don't make any money, but I don't have any risk and you don't get any money. That means that you have to do either #2 or #3 to get your loan.

2) You could get a co-signer for your loan. Though you have no prior history of borrowing money, your dad has borrowed money loads of times, so you get your dad to sign the loan with you which essentially says "I promise to pay the loan, but if I cannot, my dad will pay back the $400. This is good for a first time borrower because you are basically getting your dad to vouch for you and you (usually) get a good rate of interest, meaning that you don't have to pay as high a fee as you would by yourself, say 5% of the total amount of the loan every month.

3) I could give you the loan, but on terms greatly advantageous to me. This means that have to have a higher interest rate, say 15%.

The Loan

I agree to lend you the money to buy the Xbox 360. Let's say that you don't have a co-signer for your loan, so you will take out the loan on your own. Now here are the terms of my lending it to you: I agree to lend you the $400 to buy the Xbox 360, but at a rate of 15% interest PER MONTH for the life of the loan. You accept, you sign the paperwork, and I hand you $400. You then go buy the XBOX 360 you wanted and have a wicked awesome time playing HALO 3 into the wee hours of the morning.

Now you have to pay back the loan. Your job gives you an income of $100 dollars a month, but you can only afford to put down $50 a month, so it will take you 8 months to pay back the principal amount. But keep in mind that you not only have to pay back the $400, but also the 15% interest I tack on every month for borrowing in the first place. Suppose you set a goal for yourself, saying that you will pay the loan back in 12 months (1 year).

The Cost of the Loannterest=[P]rincipal x [R]ate of interest x [T]ime it takes to pay off the loan). You could use the complex compound interest formula, but this is a lot more simpler.

Credit History.

Suppose you were able to pay off your loan. You would now have established a credit history saying that you paid back your loan. You now have a credit history that lenders down the road can reference to lend to you. When you go for your next loan, you may be able to get a lower interest rate on your loan and way better terms in general. Any lender will now be able to look at your credit history and see whether or not you are a risky borrower. However, you credit information is always available to not only lenders but to employers and so on. Employers (like the US government) will not employ you into higher positions if you have bad debt because you are a high risk to overall security. Likewise with many corporations and businesses. It is essentially the primary means of getting ahead using borrowed money in the world. I would also like to point out that there is good debt and bad debt. School loans for example are good debt, and rarely used against you. Bad debt, like credit cards, can hurt your chances for a loan. There is a lot more to it, but this is just a basic explaination.

Your Questions.

Now you asked a few things.

You pointed out that the videos say that you can spend and spend without having to pay anything.

You then ask if all the money circulating is make believe, why can't we eliminate money?http://www.philosophyforum.com/lounge/general-discussion/3702-credit-crisis-visualized.html Read post #3, but remember to have a fresh pair of underwear handy because you will need it after you soil yourself and huddle in the corner of your room crying yourself to sleep. This is certainly change we can believe in but also expect down the road as well.

You then ask at what point will you need to have credit in your life or if there is any need at all? You are, as you read this, subject to credit. Suppose your identity were stolen and someone misused your name. That mistake could end up costing you your credit reputation and it takes years to correct it.

Also, why use a VISA check card?

Alot of credit companies have high APR and charges too.

Credit Cards are the devil - unfortunately, in some ways the credit rating they can bring sometimes is necessary. I'd get 1, only 1, use it sparingly and pay it off each month.

The risk is this... the allure of new stuff can suck one down REAL quick. And yes, be wary of offers that sound too good to be legitimate; usually they're not

I agree that credit in general can be very dangerous, but that is if it is misused. You could say the same for anything, from cars and heavy machinery to a fork on the table. It all depends on how you utilize it. For the past year, I have been using credit in the form of "margin options" as a means to stock trade, which essentially means that when I trade a stock, I do not use any of my money, but in fact multiply my buying power times two minus 10% usage fee. The same applies to short selling. The risks are considerable if you misuse the trading option, but credit (at least in that form) can be very beneficial when you use it wisely.

The main thing with credit cards is just to find a card with a good interest rate and terms of service agreement. There are still a lot of good interest rates going around, just have to pick them up. I hear of credit cards now coming with two-one month billing cycles... so beware any of ye who tread black beards cave of credit debt. ARRRR!

The problem is that you are watching a video by someone who hasnt left the economic dark ages of the LTV.

So I want a low rate of rate of interest on a loan? What's the lowest it can get, or is it differ with each loaner? Ah! This is where the credit history thing comes into play as well. I heard that my cousin's boyfriend takes out little loans and pays them off quickly. Is that a good way to build credit history?

This credit system is necessary for buying houses (I understand this to be a mortgage) and cars, yeah?

I am a noob at this stuff. But I figure it's only, what, 3 more years down the road so I better know #^it.

jg- Yeah. I should have researched it more. Thank you for the links. I will read them all
Vide-Thank you for your explanation, it is a very nice one.

The lowest interest rate is determined by your particular credit rating. I have seen very low interest rates around 5% before, but the current average is 11.32% Compare interest rates on mortgages, savings, credit cards and more and the prime rate is 3.25% Prime Rate | Federal Funds Rates Discount Rate Fed Fund Reserve Lending COFI . What this means is that that there is a base prime interest rate set by the fed + the premium evaluation by the credit company. So say I wanted to get a student loan for college. When I call the loan company, they give me an estimate of prime plus the premium, which should be anywhere from 5% to 15% (but really anything is possible). Typically, it should be around 8% - 9% for a student loan.

What your cousins boyfriend does is actually very smart. Taking out loans of a few thousand dollars and paying them back in a timely manner is very beneficial to you. Watch out though, because some credit companies and loan companies charge a penalty fee if you pay off before the maturity of the loan. I personally took out a loan for $2500 many years ago when I was still in high school, but I got my dad to co-sign for me. I paid it back, got a little certificate even, and I have not yet had trouble getting loans for College.

The credit system is definitely necessary for buying houses and cars (but mostly houses). Who has a spare $400K laying around to buy a simple house? But check out the first post in this link: http://www.philosophyforum.com/lounge/general-discussion/3702-credit-crisis-visualized.html You can see full well what happens to broad range credit, defaulting on a loan too high to cover, or the danger of variable rate mortgages.

Basically taking out credit is borrowing. So yes, auto loans, mortgages, those are credit.

The rate of interest you get depends on many things, but basically it is just the amount of risk the lender assigns to the possibility that you won't pay back your loan considering how much they stand to lose.

Certain deal on automobiles will offer a 0% apr, with a sufficient down payment. Basically you are simply paying for the car. No interest on the credit.

The safest credit going is the 3-month T-bill, which is where the government essentially borrows money, agreeing to pay it back plus interest at a date three months in the future (that isn't exactly how it works, but close enough). These offer only about a 6th of a percent yield.

You, of course, do not have the credit rating of the US government. So you could expect to pay a lot more in interest.

I can't really tell you exactly how to build a good credit rating, but as long as you maintain a good balance of debt and savings and maintain your payment history, you will keep a good credit rating.

If someone asks you if you can lend them some money, you want to determine if they will repay you. The more money they want, the more certain you need to be that you will get it back.

Now if you want to borrow some money, for whatever purpose or amount, you need to be able to let the lender know he has a reasonable chance of your paying him back. One criteria he (or an institutution) will use is your "credit score" which is a history of your past borrowings and payments. The more money you want to borrow, the higher the score he will want. Again, the higher the score, the more confidence he has in your ability and willingness to repay, so the lower the interest rate you can expect (part of the determination of rate is the amount of risk he expects).

Credit cards, personal loans from banks, on-time payments to utility companies, average positive bank balances on your checking account, and having a savings account with regular deposits---all can contribute to your credit rating.

JG Speaks true...

... I wanna emphasize that "on time payment" portion; they're relentless on this. After 20+ years, I still carry - though it's marked 'inactive' - the marks of late payments made to one of my first credit cards from back in 1983.

Again, I say: Credit Cards are Evil - Handle with Care!

So I have a pretty good idea about what all this is about now. A big thank you to all of you who have replied.