What Is Credit

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Credit is merely an advance of cash (whether seen or unseen) in order to buy goods or services over a period of time. Financial institutions, businesses, and individuals will often lend money to a person, people or a business/institute they deem worthy of receiving the money based on the perceived ability to repay it with interest. Credit is used to buy goods and services which in turn create a healthy overall economy.

Why use credit? It allows you to obtain goods and services you might otherwise not be able to purchase upfront such as cars and homes. In fact, in today's economy, there would be no car or housing industry if people had to wait to save up to buy a home or car. Homes are often ten times or more than a person's annual income and cars might be equal to 1-2 years income. If people could not afford homes or cars, this would put a lot of people out of work.

The credit industry is based on making a profit on lending money to people. The higher the risk of lending the money, the more money they can charge in interest rates meaning more profit. This is why there is trouble in the economy due to making too many risky loans that simply will never be repaid. It left a hole in the economy that cannot be covered.

Credit is a privilege, not a right. If you have earned the privilege to get credit, you must use it responsibly and make your payments in a timely manner. If you find yourself in a position where you cannot pay it back, you are responsible for contacting the creditors and making arrangements.

As a consumer, you also have rights to be treated fairly and charged unfair interest rates. When it comes to late payments and collections, you also have a right to be treated with respect and not publicly embarrassed as they attempt to collect.