October has been coined as National Credit Awareness Month in the United States of America. In other words, this is a good time to get a better understanding of what is credit.
So, what is this “imaginary money” that keeps our country functioning and causes massive debt? Credit is the ability to borrow money or access goods or services with the understanding that you’ll pay later. In the past reputation was a major factor on deciding creditworthiness. Now, credit is a 3-digit number ranking from 300-850. It is a representation of a person’s creditworthiness. This number, used by creditors to understand your record of borrowing and repaying funds, is known as credit history.
Credit history is compiled from reports that are housed by three independent bureaus- Experian, TransUnion, and Equifax. All card issuers, banks, and credit unions all voluntarily send your borrowing and repayment information to the bureaus.
While credit comes in many forms, the most common are credit cards, home mortgages, car loans and student loans. You must apply for credit, and the amount you’re authorized to use is determined by lending institutions like banks or mortgage companies. It is based on your personal financial history.
Having good credit makes it easier to do many things, including rent an apartment or buy a home or car; sign up for a cell phone plan, or get a student loan. Good credit is necessary if you plan to borrow money for major purchases, such as a car or a home. With good credit, you can even save money in the form of lower interest rates or waived fees and down payments when setting up utilities. As consumers, we use credit to buy almost everything, including food, clothing, housing, and transportation. Unfortunately, many people struggle to control their use of credit and get overwhelmed by piles of bills.
In the next blog we will discuss different types of credit and how to decrease debt. If you have specific questions or would like to better understand what credit is send me an email to dlsingleton@sc4.edu. Always remember, this is a person-centered approach, so take what you need and apply it to your situation. As always Let’s Build!
Photo Credit by Nick Youngson CC BY-SA 3.0 Pix4free.org
