Credit 101: Everything You Need to Know About Credit

You have probably heard the terms bad credit, good credit and credit scores before; especially if you are new to the credit card system. While these phrases might be familiar to you, they can be very consuming as well.  This is because not all of us deal with the credit scores daily and the credit score is not something we can relate to in our every day financial lives.

What is a credit and what’s its use?

Essentially, credit is just borrowed money that you can use to purchase common utilities and expensive/valuable property depending on the lender and type of credit card. When you take a credit you are making an agreement with the lender on the payment options dates and the period of time you clear the payment. In other words, the money is given to you to make a purchase when you don’t have the money to buy a certain item. 

Normally the money is provided by a bank credit card company or other lenders. You will need to build a credit card history or track record of borrowing and making payments on time. Credit history will help you get bigger loans in the future. A good credit history should help you buy a car rental apartment get a mortgage buy a house or get good rewards from the credit company.

How do you build a credit?

Building a credit history from scratch can be a little confusing. You need a good credit history to get a loan but you can’t create a credit history without having previous loans. So how does this work? You have to build your credit from scratch; there are certain types of government loans you can get without a credit history.  For instance student loans and federal student loans can be very beneficial in building your credit. Paying back the loans will help you build a good credit history.

You can also start out with a secured credit; it requires you to put down some cash deposits and open the card. Secured credit cards are not funded by that deposit. This means you’re still bring the money from the bank and paying it back in monthly bills. If you do not make the payments on time, or close the cards without making the payments, the lender has a right to claim all the money you paid as an upfront fee. If you close the card after making the payment in full or decide to upgrade to an unsecured credit card, the lender is obligated to give you your deposit back.

Credit score basic

A credit score is a number used to determine your credit card activity. It is used for credit cards, utility bills, loans, large purchases, rental fees and other financial fields. With a low credit score, you have no luck in the financial sector. You will lose on loans, good interest rates and perfect deals. Your payment history, credit card dept, loans, and utilities have a high impact on your credit card score.