Personal Finance

What is credit?

Ever wondered what is credit? Credit is more than just a plastic card you use to buy things – it is your financial trustworthiness. Good credit means that your history of payments, employment and salary make you a good candidate for a loan, and creditors – those who lend money or services – will be more willing to work with you.

Having good credit usually translates into lower payments and more ease in borrowing money. Bad credit, however, can be a big problem. It usually results from making payments late or borrowing too much money, and it means that you might have trouble getting a car loan, a credit card, a place to live and, sometimes, a job.

A bad credit history can haunt you for a long time – seven years or more. That’s why the best thing to do is learn how to maintain good credit before there’s a problem. While this might seem complicated at first, it gets easier once you understand the basics of credit and how it works.

Did you know that there are companies that keep track of whether you pay your debts and if you make payments on time? Then these companies make this information available in the form of a credit report and score.

Most creditors use credit scoring to evaluate your credit record. This involves using your credit application and report to get information about you, such as your annual income, outstanding debt, bill-paying history, and the number and types of accounts you have and how long you have had them. Potential lenders use your credit score to help predict whether you are a good risk to repay a loan and make payments on time.


You might apply for a credit card issued by a local store, because local businesses are more willing to extend credit to someone with no credit history. Once you establish a pattern of making your payments on time, major credit card issuers might be more willing to extend credit to you.

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