What is Credit?

Credit has two main definitions. First, credit can be described as your level of trustworthiness when it comes to repaying money that you borrow. It can also be termed as your ability and your intent to repay money that you borrow. This level of trustworthiness (or ability and intent) is measured by something called a credit score.

Second, credit can used to describe the money that you borrow. You get this credit from a lender, and then you pay it back along with fees and interest. Credit often gets a bad rap because it is associated with borrowing money, but when it is used appropriately, it can be a good thing.

For example, many people take out a loan to purchase a house or a car. The money that you borrow is credit. You will have to pay it back over time with interest. The interest rate is determined, in part, by your credit score. Credit scores range from about 350 to 850. Some groups, such as VantageScore, have different ranges. Credit scores are calculated using a variety of things such as credit history.

A low score indicates to a lender that you are not a good bet. You’re risky. You might not make your payments on time. You might not make your payments at all. Take Linda, for example. She has a score of 620. She has a good deal of debt. She has almost maxed out her credit cards, and she has missed some payments. If she goes to apply for a car loan, she will end up with a high interest rate if her application is approved.

A high score shows lenders that you are a good bet. You’re stable. You make your payments in full and on time. Blake, for example, has a credit score of 820. If he goes to apply for a car loan, his application will most likely be approved, and he will receive a much better interest rate.

You may be wondering how to check your credit score, but the actual score is not that important. Paying your bills on time and making sure that credit reports are accurate is much more important than the actual number.

Credit cards are also related to credit since, again, you are borrowing money that you will pay back at a later time. You can use credit cards to build your credit, but they can easily destroy credit if they are used improperly.

So, to recap, credit is both your ability and intent to repay a loan, and the money that you borrow. If you want to learn more about credit or if you need to fix your credit, take a look at How to Fix Your Credit! for a veritable gold mine of information.

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  • Credit is a tool. Use it wisely and it can help you achieve your goals. Use it unwisely and you might lose a limb, much like a chainsaw.

  • Credit is the trust which allows a party to lend some resources to another party and the other party doesn’t pay it instantly but instead pay in near future

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