IV. Credit and Consumer Debt
Why do you need to know this?
Some sources of financial aid for medical students require that
you pass a credit check. All medical students should know what
their credit report is and the role their past consumer behavior
will play in their ability to borrow money.
A. Credit: What Is It?
• Credit is made available to a borrower by a lender. The lender extends financial resources so that
the borrower can finance or pay for something expensive, such as a car, a house, or an education.
• The lender extends credit for a price. The price is derived from such things as interest rates,
origination fees, and late payment fees.
• Credit can be made available in many ways: credit cards, home mortgages, commercial loans, lines
of credit at a bank and student loans.
• Credit is important to you because it can finance your most important goals, including your
B. How Is Credit Used?
• Credit provides access to items you could not otherwise afford by allowing you to pay for them as
part of your ongoing living expenses, rather than waiting until you have sufficient cash to purchase
• Credit cards are a convenient way to simplify bill paying and can also be used as currency, for
instance, to rent a car or order merchandise from a catalog. About 80% of the adult population
have credit cards.
• Most people purchase a home not with cash, but with a home mortgage loan. Expensive items,
such as automobiles, are often purchased with a loan.
• Credit can be used wisely or unwisely. It can simplify your financial life, but if you overextend your
credit and carry large unpaid balances, you will incur high interest charges. If you are unable to
make your required payments, you could lose your house, car, or other items purchased on credit.
C. Why Is Credit Important to You Now?
It is very likely you will rely on loans to finance your medical education. Nationally, over 85% of
medical students have educational debt by the time they graduate from medical school. Some