What Is Credit And How Does It Work

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What Is Credit And How Does It Work?
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• edit may seem like a trifle and fickle thing, but
  it can be demystified and used to help better
  your credit rating and score. Credit is when you
  borrow money against your own name in order to
  make payments on an item of high price or value.
  The highest forms of borrowing are often vehicles
  and homes, though jewelry, electronics,
  recreational vehicles, and many other items are
  available on credit, even furnishings and home
  goods can be bought on credit. With the expansion
  of credit over the past few decades store have
  cropped up their own store credit cards that you
  can use to purchase items in their stores and on
  their websites on credit.
• The positive of credit is the ability to finance
  something you cannot immediately afford and the
  option to build a solid credit rating, or name,
  for yourself for future borrowing power for the
  larger items like a house, which for 98 of
  people requires a loan. This borrowing power can
  also be extremely useful in the time of emergency
  when funds are low due to job loss, medical
  problems, injury, catastrophe, or a death of an
  income earner. Borrowing allows people to get
  through these tough times without sacrificing
  their quality of life.
• The negative aspect of credit is that it has
  allowed people to live outside their means and
  every day millions of people find themselves
  further in debt. While, this funds credit card
  companies, it can bring great hardship to those
  experiencing high levels of debt. Credit, when
  used wisely, can offer opportunities where there
  are none and help you find a greater level of
  borrowing in the future and help during a present
  situation, but when used unwisely can push you
  into a worse financial situation and negatively
  affect your future borrowing power.

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• When you turn eighteen it seems that every bank
  and financial institution in the country suddenly
  has your personal information and wants to offer
  you free money, this is a dangerous time and
  you should avoid a good majority of these offers.
  It is wise to open one account, but only charge
  during a month what you are able to pay off
  completely before the due date. One or two open
  revolving accounts that are constantly in good
  standing offer a great way to build good credit.
  This can also be used when someone is bouncing
  back from bad credit or a bankruptcy, but can
  also be a slippery slope if you have not broken
  your bad spending habits.
• Your credit report offers a reporting mechanism
  through three major agencies (Equifax, Experian,
  and TransUnion) that gather account, financial
  and personal information about you from the
  creditors and bills you have to form together
  with a credit rating and thus a credit score that
  represents your ability to pay the debt, your
  timeliness in paying your bills and how often you
  move or change jobs. While, much of this
  information may not seem connected it is all used
  to gauge whether or not you are a person worthy
  of credit, a job or even renting an apartment.
  So, its vitally important to set a good credit
  rating and practices from the start as credit
  impacts your entire life. Some bad credit and
  financial practices can lead to bankruptcy which
  allows the debtor to wipe their debt clean,
  except for a few different areas (like school
  loans, taxes due, and others) and start over.
  While this may seem like a dream to many, it sets
  you back and means you not only have a note on
  your credit report showing the bankruptcy and
  your inability to pay any of your bills, but now
  you have essentially no credit and have to start
  over as if you were eighteen again.
• Regardless of how you choose to handle your
  credit and your potential borrowing power, its
  important to take the time to understand the
  credit rating and reporting process, not to
  mention the staying power they both have. Credit
  ratings, scores, and reports are essential to the
  quality of life and options available to
  individuals and can have a direct effect on your
  status or level of success throughout your life.
  Take the time to understand these things and work
  to set yourself up for better financial success.

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