Understanding the real cost of money, creditworthiness, and how to prioritize your financial future

Financial literacy is the foundation of financial freedom—and yet, most people were never taught how money actually works. At Level Coaching, we believe that knowledge is power. Whether you’re just getting started or looking to sharpen your skills, building your financial literacy is one of the most empowering steps you can take.

In this post, we’ll explore three essential topics every financially fit person needs to understand:
🔹 The real cost of borrowing (Interest Rate vs. APR)
🔹 The 5 Cs of Creditworthiness
🔹 The golden rule of financial independence: Pay Yourself First

Let’s dive in.

📈 Interest Rate vs. APR: What’s the Real Cost of Borrowing?

When you borrow money, whether through a credit card, personal loan, or mortgage, you’re not just paying back what you borrowed—you’re paying for the privilege of borrowing it. That’s where interest rates and Annual Percentage Rates (APR) come in.

Interest Rate: This is the percentage of the loan amount that you’re charged for borrowing money. It’s the base cost of the loan.
APR (Annual Percentage Rate): This goes a step further. It includes the interest rate PLUS any additional fees or charges (like loan origination or processing fees). It’s the true yearly cost of borrowing money.

Tip: Always compare APRs when shopping for loans—not just interest rates. APR gives you the full picture.

Example: A credit card might advertise a 15% interest rate, but with annual fees, balance transfer fees, and other charges, the APR could be closer to 22%.

💳 The Five Cs of Credit: How Lenders Judge You

When you apply for a loan or line of credit, banks and lenders evaluate your creditworthiness—in other words, how risky it is to lend you money. This evaluation is often based on the Five Cs of Credit:

Character
- Your credit history and trustworthiness. Do you pay your bills on time? What’s your credit score?
Capacity
- Your ability to repay the loan based on income, existing debt, and employment status.
Capital
- The assets or savings you have that could be used as a backup in case of financial hardship.
Collateral
- Property or assets (like a car or house) that can be used to secure the loan.
Conditions
- The terms of the loan and external factors like the economy, industry trends, or loan purpose.

Understanding these five factors can help you proactively manage and build your credit—both as an individual and as a small business owner.

Pro Tip: Want to boost your credit? Start by improving Character (on-time payments) and Capacity (lower debt-to-income ratio).

💰 The First Rule of Financial Freedom: Pay Yourself First

Before you pay bills, before you treat yourself, before you do anything—pay yourself first. This means putting a portion of your income directly into savings or investments as soon as you get paid.

This simple but powerful habit builds the foundation for long-term wealth and peace of mind.

Here’s how to apply it:

Savings: Set up automatic transfers to a savings account—even $20 a week makes a difference.
Budgeting: Use a 50/30/20 method (50% needs, 30% wants, 20% savings/debt).
Investing: Once your emergency fund is built, explore investment accounts like IRAs or index funds.

Level Coaching Tools: Inside your member portal, you’ll find budgeting templates, savings challenges, and investing guides tailored to every financial stage.

🔑 Financial Literacy = Financial Power

When you understand how money works, you’re no longer at the mercy of it. You’re in control.

Whether you’re rebuilding your credit, learning how to borrow smart, or saving for your future, knowledge is your strongest asset—and Level Coaching is here to guide you every step of the way.

Ready to build your financial literacy?

Log in to your Level Coaching portal to access your tools, checklists, and courses to help you master the basics and build a smarter, stronger financial future. Not a member of Level Coaching? Reach out today to get started!

888-359-7755 or care@level-coaching.com

Written by Nichole Olds,
July 2025