What is credit and how does it work?

Credit is an action between two parties which revolves around trust. Credit begins when one party provides resources, most commonly money, to a second party. The second party will not refund the first party immediately, but will instead make an arrangement with the first party on when to reimburse the resources given. This arranged date is a fixed future date in which the resources must be paid off without consequences.

Consumer credit is the most common type of credit and is the type of credit we use in our every day lives. Consumer credit is any money, goods, or services which are provided to someone instead of payment. Typical forms of consumer credit which you may be dealing with at this very moment include credit cards, store cards, auto loans, personal loans, retail loans, and mortgages.

As you may already know, credit requires you to pay an additional amount than what you originally asked for. This is due to the interest on most of all credit cards and loans. You may also have to pay other fees including arrangement fees and other mandatory charges required by the lender. Other optional costs may be added to your fixed amount if you choose to add them, for example credit insurance.

Having good credit is imperative if you plan on obtaining any form of credit. Your ability to purchase and lease items, goods, houses, cars, and etcetera all depends on your credit status; and since most homes and cars are purchased using credit, having a good credit score should be high on your list. Having a good credit score will allow you to purchase almost anything you want, so using your credit wisely is a smart move.

Credit card companies, loan companies, even the company you are attempting to purchase a house from will all perform a credit check on you. Upon this request, the credit reporting agency will send the company a list of all your current and past credit accounts, along with a score for each. These scores will determine whether or not you are approved for the credit card, loan, home, and etcetera. Some companies may even ask you for your employment history and current income to ensure your credit worthiness along with your ability to repay the loan.

If you find yourself in a hole of bad credit, do not be alarmed. Plenty of people are finding themselves left in a state of horrible credit scores. Although there may be no easy and quick fix to solve your credit problems, the sooner you start the sooner you will be on your way to better credit. The first thing you need to do is request a credit report so you can see just how bad things are.

Check the credit report for any errors and fix them immediately. Following this step, pay off as much as your debited credit card as you can, and continue with this action until it is paid off entirely. Lastly, check to see what your states limits are on reporting bad information. If there is any older negative information that can be removed from your credit report, inform the credit agencies immediately. Resolving your credit score and making it decent once again is important if you plan to obtain certain purchases and loans.

Credit is something that has been used for years to help those struggling with money. Credit can be an incredibly good thing for consumers, or bad depending on how you use it. The easiest way to make sure you’re using your credit for good and are obtaining a high credit score is to ensure you are making your monthly payments on time and are never late on any payment. Late payments are a sure fire way to kill your credit scores and leave you struggling to retrieve that good score once again.

Although credit may seem like a confusing action, it is really quite simple. After obtaining a loan or credit card from a company, you will receive a certain amount of money to spend. You will be required to repay this amount within a specific time, which means you will have monthly payments you must pay to the company. Remember that the amount you are paying back will be slightly larger due to fees and APR.


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