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Understanding Consumer Credit

What exactly is credit anyway? A handy guide to understanding the importance of your credit file.

The terms "credit" and "consumer credit" can be confusing, as they are frequently used to describe several different financial concepts. First, it is important to differentiate consumer credit from other types of financial market credit - basically, consumer credit simply refers to the type of credit offered to individual consumers. On the other hand, there is commercial credit, institutional credit, along with other types - all more complicated and likely irrelevant here.

Credit Equals Lending And Borrowing

The most basic definition of credit is when one party lends money to another party. Any time money is loaned or borrowed, that money is considered to be credit. When a lender agrees to allow a borrower to access up to a certain specified amount of money as they need it; this is considered a line of credit or revolving credit. Examples include credit cards, home equity loans, personal loans, and so on.

Understanding Your Credit History

Sometimes the term credit is used to describe your own personal record of borrowing and making payments. This is your credit history, or as it is sometimes referred to, your credit report. There are three major credit bureaus that keep track of all of your financial transactions that are reported to them. They keep track of the amount of money you have borrowed, how much you still owe and whether or not you have made payments on time. By comparing the amounts outstanding to their best estimation of your income, they are able to maintain a fairly accurate record of your financial history.

Why Does Credit Matter?

What Is Credit Well, credit these days is just a fact of life. Most people realize that every time they go to borrow money, their credit is checked. But would you be surprised to know that your credit is a factor that determines whether or not you are eligible for cell phone service? The list goes on... most insurance companies use your credit to determine the rates they will charge, and employers often check your credit report as a deciding factor in whether or not they will hire you - credit literally plays a role in all aspects of our lives. To receive the best opportunities, having good credit is essential.

Those who use consumer credit responsibly will end up finishing ahead financially in the long run. With our friendly non profit credit counseling programs, GFM can help you take control of your credit today! Call now, 1.866.467.1259.