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Credit

Many of us find that we are better at paying off bills at the beginning of a month than at the end of one. Generally speaking, our finances seem to run out from about halfway through the month. For some, obtaining some form of credit from a lending institution is the ideal solution to this. It means that they will have access to funds during the month, and that those funds can be repaid at the beginning of the following month.

Credit is given when a bank loans a person money which allows that person to purchase goods to fulfill their needs. This money could be accessed in various way, the most common method being by credit card. The person then has the responsibility to pay that loan back to the bank. This can be done either in one lump sum, or in installments. Because it is a form of loan, the amount that is paid back will be larger than the amount used because of the interest rates attached to loan.

The term ‘credit’ can also be used to describe a person’s general worth. In the financial world, this would relate to their ability to pay back that loan. If they are very capable of repayment, then they have more worth or credit. By extension, the term credit worthiness is now most often determined according to a scoring system. Bank employees simply input your financial history – both current and past, into a computer. The computer will run all the figures against each other and come up with a credit score. The higher your score, the more credit worthy you are.

This in turn translates into the type of loan you will be able to get. If you have a high score, you will be able to get more credit. While this is generally beneficial to most individuals, we should always remain alert to the possibility that our credit limit could be extended beyond what we could afford.

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