Buy now, pay later! Nothing down, 24 monthly payments! Low, low 9.9 percent APR! We are constantly urged to accept credit card offers or purchase items on credit. But what is credit? The word “credit” refers to the right to pay for something in the future. For instance, if you purchase furniture today but are allowed to pay for it over the next few years the merchant has given you "credit." Having the ability to borrow money or purchase something on credit enables us to obtain things we would otherwise have to save for years to afford; like homes, cars, and a college education.
The word “credit” also refers to the belief or confidence in a person's ability and intention to fulfill a financial obligation. Credit is your reputation as a borrower. It tells others how likely you are to repay your loans. When you have good credit, companies will have a high level of confidence in you. As a result, banks will be willing to give you a loan and retailers will be willing to let you purchase something now but pay for it later. Many lenders offer better terms and lower interest rates to consumers that have good credit ratings. When you have bad credit, you will likely pay more for the credit or you may not be able to get credit at all.
Credit is a valuable tool, but it can also be a dangerous temptation, leading people into debt far beyond their ability to repay. Understanding credit is to recognize it is both good and bad. In fact, the advantages of credit cannot exist without the disadvantages.
When you purchase an item on credit you are not only acquiring that item but also acquiring the right to pay for that item over time. As a result, not only will you have to pay the purchase price of the item but you will also have to pay an extra amount for that right to pay over time. What you pay for the right to pay over time is called interest or a finance charge.
Contents
Table of Contents
What is Credit?
Obtaining Credit
Your Credit Report
Credit Bureaus
Fair Credit Reporting Act
Credit Scoring
Choosing a Credit Card
Credit Problems
Re-establishing Credit
Disputing a Debt
Stop Junk Mail
Credit and Divorce
Equal Credit Opportunity Act
Who to Contact
Definitions
About DFI
Download
Understanding Credit
