FINANCIAL literacy is about more than being good with numbers. It's about understanding how money works and having a practical, working knowledge of how to borrow, save, and grow your money.

Whether you are looking to save for an overseas holiday, or better prepare yourself to meet eligibility criteria when applying for a loan, understanding how banking systems operate will help you take control of your financial future.

When deciding whether to lend you money, banks and financial institutions look at your income, current financial commitments and credit rating to predict your future ability to repay.

There is a common belief that you need a credit card to build your credit rating, but that is not true.

Your credit rating is built by honouring your financial obligations, in other words paying your bills on time. Mobile phone contracts, rent payments, and car insurance can all help to build a picture of your reliability to make regular repayments.

There are a few definitions you should get familiar with before applying for a loan, specifically; fixed/variable interest rates and secured/unsecured loans. These are terms that will turn up in discussions of most loans and represent significant choices in planning your finances.

A fixed interest rate means you pay the same rate for the duration of the loan - your repayments will not change.

A variable interest rate means the percentage of interest you pay on your loan amount is subject to change, which can happen as a result of monthly RBA changes, and other market conditions.

With a secured loan, your loan is secured against a form of collateral. If you take out a secured car loan, your new car might serve as the security. An unsecured loan has no collateral.