A Brief Introduction to Credit

A Brief Introduction to Credit

If you are thinking of buying a house, a car, or start your own business, you will need a loan or credit. The word credit comes from the Latin ‘credititus’ and it means to believe or trust. And it is that any credit transaction is based on the confidence that it will be paid back, usually with some kind of interest in an agreed timeframe.

An informal credit is between family and friends. If for some reason you need money, you can call a family member or friend to provide you with the amount, and if they have the resources and rely on you, it is safest to grant you the loan.

More formally it is given by financial institutions. The rationale for these companies is to raise public money and then lend to their customers, and being a more formal transaction, you need to meet certain requirements to access these credits such as having a good credit history and current credit score in positive status.

If you do not have an established credit history, the lender will evaluate other factors such as your income, employment and the like. And if they still do not convince the lender, it may be that you require a guarantor with good credit history.

Types of Credit

There are three types of credits;

Term Loans

These are loans whose payments must be made ​​in equal amounts in a specified period of time. This category includes mortgage or car purchase loans.

Rotary Credits

These are determined by a quota or limit available to be renewed. Credit cards are a typical example.

Open Credit

This type of credit is limitless, but the amount borrowed must be paid in full each month. Charge cards fall into this category.

How does credit work?

All credit begins with a request to a lender, who will review and verify your personal information, including your credit history, and based on the information gathered will deny or grant the requested credit. If your application is approved, the lender must explain the loan conditions and also deliver such terms in writing. The terms include the amount or credit limit, the amounts to be paid, frequency of payments, interest rate, penalties, and other associated costs.

Usually, the lender will send you a statement or invoice which you must pay on time to avoid penalties as agreed and maintain a good credit history.

Establishing Credit

If you have never established credit before, it is safer than going to need a guarantor to approve your loan application. Therefore, try to establish good credit as soon as possible, and you can do so by opening a bank account and as you grow your relationships with the bank, you can qualify for a credit card.

The easiest way to establish credit is through credit cards, but discipline and responsibility are also required once they are granted, because they are not only enough to establish credit but keep a good record always by paying on time and if the entire monthly balance is possible.

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