What is Credit?

What is credit and why does anyone need it? This is the same question that is continuously queried by literally millions of people every single day. Regardless if you just turned 18 or even if you are 35, credit is a part of everyones daily life, from our utility services, to hospital visits and of course cell phones and home ownership. To state it a basic as humanly possible, credit is the fronting or loaning of money or another resource, which includes but not limited to services and even goods, anything of monetary value. Rather than paying for everything up front such as a prepaid cell phone, one can opt to pay over a set period of time until the full amount is paid plus an amount of profit is made by the person or company who loans this money, goods or service.

Although we have mentioned goods and services offered as a form of credit, we want to explicitly stick to the credit which involves pure money in the form of credit cards. In the case of a credit card, not including prepaid or many debit cards, one would apply to a company, which is licensed as a bank, for the card and in exchange, if the application is approved, they give you money in the form of a plastic card. This card gets rid of the need to carry large sums of cash, as you can simply stop at a gas station, fill up your car, pay with the credit card, and not have to pay for the gasoline till the end of the month.

When you apply for any form of credit, the first thing that the licensed banking institution does is looks at either one or all of the three major credit reporting agencies reports to see what your credit score is. From this score, they can simply determine if you are a risk, or a profit. In most cases, if you are considered a risk, most credit companies will just deny your application, however, there are also companies who specialize in high-risk crediting who may grant you a credit card in order to help you rebuild your credit rating to a more satisfactory level.

After determining your credit score, which is based on past and current debts as well as paid balances, they then will decide how much credit you are worth to them. Basically, the higher your credit score is, the more you can avail. This becomes especially important when purchasing a home, as everyone wants something just a little bit better than they can get. To help you increase your credit rating, which in turn may or may not be able to increase the amount that a bank may loan for your home purchase, using a credit card is a must.

Your personal credit is based on your own actions in most cases, just like your personal financing, you must also decide how much credit you can afford so that you can increase your credit rating.

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