What is Credit?

Credit, derived from the Latin word "creditus" which means "to believe" is defined as trustworthiness or credibility. Fundamentally, credit is an act of faith between buyer and seller. Credit is used to purchase both goods and services without immediately paying for them. This includes credit cards, personal loans or mortgages, and familiar services such as your telephone and cable.

As our society moves further away from cash, your daily finances become more dependent on credit. By way of trust and credibility, our economic society works more smoothly and conveniently.

The credit system is open to all. If you choose to use credit with good responsibility, its power will increase with use. If you misuse it, the power will decrease. Like anything based on people's faith in each other, credit is both a fragile and a precious thing.

How to build a credit history.

The way credit is established today is by building a history of borrowing and timely debt repayment. That's why, if you are just starting life as an adult, the best thing you can do is to borrow some money and pay it back on time. If used responsibly, the credit card is certainly a good tool for establishing your credit and has its advantages. It's more widely accepted than a check and much easier to carry around than cash. It also comes in handy when you need funds in an emergency.

Why is a Good Credit Rating Important?

Your credit history is going to be reviewed every time you apply for credit, to make a major purchase such as a car or house, or when you lease an apartment. A poor credit history can cause a business to deny you credit. If you declare bankruptcy, this can be on your credit report for ten years. Information about a judgment or lawsuit against you can be reported for seven years or until the statute of limitations expires, whichever is the longer period. Good credit opens many doors to opportunity, whereas, bad credit closes those doors.

Your Credit Report

Your credit history, a record of your current and previous payment patterns pertaining to your credit promises, is contained in a file which is maintained and sold by a credit bureau. If you ever applied for a credit or charge account, a personal loan, insurance, or a job, then you have a credit record on file at a credit bureau. A credit record typically contains information on your history of paying your credit bills, your income level, and the amount of your debts.

You should check your credit annually.

Sometimes people think they have good credit. Then they apply for a loan and are surprised to learn that there are some problems with their credit. The best way to find out if you have good credit is to get a copy of your credit report. It's a good idea to order your credit report once a year to make sure there are no errors on it. If there are errors or outdated information on your credit report, it could hurt your chances of getting a new loan. Studies have shown that many credit files contain inaccuracies that can harm your credit rating, leading to rejections when you apply for loans, insurance, even a job. Often the result of simple human error, they can be caused by anything from a clerical error to a computer glitch in which your file is mixed with that of someone with a similar name. It pays to check your credit report regularly.

More Information:

Credit Report
How to Get a Credit Report
Credit Bureaus