Credit plays a vital part in our economy especially in the lives of individuals. But what is credit? And what are the advantages and disadvantages of credit?
Credit is an agreement to get money, goods, or services now in exchange for a promise to pay in the future. The decision to extend credit is usually based on an individual’s credit report. A credit report will contain information on whether or not you have missed, or have been late on your payments in the past and how late you were. It will also provide details such as your current and previous addresses, social security number, any credit card accounts and current balances you may have, as well as past credit card accounts even if those accounts have been closed or canceled.
There are different types of credit and each has different payment options. Installment credit: you sign a contract to repay a fixed amount of credit in equal payments over a period of time. Revolving credit gives you the option of paying in full each month or making a minimum payment. As you pay the money back, it becomes available to borrow again. Open 30-day accounts are required to be repaid in full each month.
Credit has its advantages when used wisely. The main advantage I believe is that credit is convenient. People can use credit if they do not have the cash to pay the total cost of an item or service at one time. Credit can help if money is needed for emergencies, such as unemployment, illness, death, or property loss.
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