What Is Credit

I am sure when you were younger you saw people around you using this magical piece of plastic card called ‘credit card’ which can be used when they have no cash . Off course as you are older now you realise that it is simply a type of credit facility. This is the most widely used type of credit in the world by households.

When you buy goods or uses a service today and pay for them at a later date this is known as credit. A credit in other words is a financial facility and includes credit cards, loans, mortgages and even payables such as rent, telephone services and electricity services in arrears. Credit is not just something that is offered to anyone, before someone offers you credit they must trust that you can repay the credit you use, this can be referred to as financial trust worthiness. Financial trust worthiness can be measured using credit rating which is generated by viewing your credit history.

For offering that good or service today and paying in the future, the lender will require compensation in the form of interest or a premium at a fixed date. Failure to meet this obligation would inevitably affect your credit. However at the same time, once goods and services taken are paid for at the pre-determined rate, by the specified time this will impact upon your credit positively.

We all want to achieve good financial trust worthiness so that we can be offered credit at the most affordable cost, so we need to ensure that during our life we adopt good credit practices. To do this you need to spend time learning the optimum level of credit you can afford and ensure that payment deadlines are strictly met.

By: J. Wayne
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