Credit is defined as an agreement between two parties, where one party borrows something from the other, and agrees to repay the lender within a certain period of time and under specific terms, which often involves additional charges in the form of interest. In general, credit refers to an individual borrowing money from another individual or from a financial institution. Common examples of types of credit include a credit card, an auto loan and a mortgage.http://www.investorwords.com/1193/credit.html
Credit is important for making purchases when the purchaser does not yet have the money required. The amount that can be borrowed depends on the borrower's credit history, and therefore building a positive credit history is important. In general, this is done by borrowing reasonable amounts on a regular basis, and paying back those amounts on time.http://www.experian.com/credit-education/all-about-credit.html#build
Credit File and Credit Score
Organizations such as Equifax and Experian are responsible for maintaining the credit history of individuals in the United States. Included in a credit file is information such as personal identifying information, details on open accounts with lenders including type of account and amount owed, a list of companies who have queried the credit file, and any judgments, liens or bankruptcies.https://help.equifax.com/app/answers/detail/a_id/163/related/1/search/1
All of the information in a credit file is used to determine an individual's credit score. The credit score is a summarized, simplified way at rating an individual's credit history, which allows potential lenders to determine whether a loan should be granted. In general, credit scores range from 330 to 830, with a higher score indicating a better credit history. http://www.experian.com/credit-education/basics.html Any individual can check his or her own credit score through the websites of Equifax, Experian or TransUnion.
Credit Video
This video defines credit, and describes the way it functions in the economic world. It stresses the fact that the financial world seems confusing and hard to understand, and yet how important it is for consumers to understand the basic facts of credit in order to ensure they are financially secure.
Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact your financial advisor before using the information presented here.
References
Fast Facts
-
Definition
Agreement between two parties to lend money, with repayment terms
-
Importance
Allows purchasers to purchase goods and services without having funds on hand
-
Price range
Interest rates and fees vary
-
Common forms
Credit cards, auto loans, mortgages
