What is Credit?

Credit refers to borrowed money. When you buy something now and promise to pay for it at some point in the future, you are using credit. As such, credit allows you to make a purchase without having the required cash in hand. Nonetheless, it should be understood that credit is not a substitute for cash, but a type of loan that must be paid back with future income.

Before being allowed to use credit, a lender must first be willing to trust that you can repay the amount of credit you use. Your financial trustworthiness is determined by a number of factors, the most commonly used of which is your credit history. This history details how you have used credit in the past and is reported in your credit report and credit score.

How does Credit Work?

To establish credit with a lender, you must first be willing to accept the lender's terms for using this credit. These terms include, but are not limited to, the annual fee, annual percentage rate, billing cycle, minimum payment, grace period, late fee and credit limit.

After accepting the specified terms and submitting an application, the lender will use identifying information, like your social security number, to scrutinize your credit history. If the lender determines that you are financially trustworthy, it will extend credit to you via a credit card or loan.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki