The Basics of Credit               

Basics of Credit defined:

 Credit is what you use to buy a home, a boat, a new stereo, airplane tickets – hundreds of things.  Credit cards issued by various financial company’s gives us a freedom and flexibility that provides convenience, but has pitfalls along with it.

 Credit is more than borrowing money - it increases our purchasing capacity.  Most of us borrow buying power when we use our credit cards.  It allows us to go to a store and “buy” a microwave right now, though we don’t pay for it until later.

 But credit isn’t just a card, any more than it is a “free” microwave or “free” money.  Credit is really an idea, not a thing at all.  Actually, it’s a form of trust.  If I loan you my sweater, I trust you to give i8t back.  If a banker loans you money, he or she trusts you will repay it when you say you will.

 Simply put, credit allows you to pay later for an item you purchase now.  In today’s world, credit means convenience…….. it means you don’t have to save the money upfront, you don’t have to carry cash or write a check.

This convenience is not free.  It has a cost…usually called interest or finance charges, as well as other fees.  Interest is what it costs you to buy now and pay later.  And, if you fail to pay or you pay late, you get hit with penalties and late charges, which cause you loss.

Credit is made possible with an agreement

 What makes credit possible?  Again, trust.  When we’re friends and I loan you my shirt, our trust is understood.  But if I don’t know you, if I’m a credit card company or a bank, we make our trust formal and put it in writing.  In other words.  That promise is written down as an agreement between you and your lender.  There are many kinds of credit agreements, known as “debt instruments”.   What they do is ask you to…..

·         Provide accurate information about yourself

·         Understand and abide by the “terms” of the agreement (the value, the repayment period and interest)

·         Agree to these terms by signing on the dotted line.

PS.  If you have a problem with credit, like a lot of credit card debt---you can make that go away!  see .Home Page
or Debt Elimination Page

 Credit Involves Risk