What is Credit?


Credit is the ability of a consumer to obtain goods or services prior to payment being made, based on the expectation payment will be made in the future. According to Experian there are four types of credit:

· Revolving credit- This means you have a credit limit and can charge up to that amount. You’re allowed to carry a balance each month and make payment. A good example of revolving credit would be a credit card.

· Charge Cards-These type of cards are used the same ways as credit cards but are different because they require you to pay the entire balance every month.

· Service Credit- This is credit agreements with service providers such as mobile phone providers, electricity, water, etc. You pay monthly for service but not all service providers report to the credit bureaus.

· Installment Credit- With this type of credit, you are loaned a specific amount of money and agree to repay installments over a period of time with interest. An auto loan and mortgage are great examples of installment credit.

By obtaining these goods or services, creditors will send your information to the credit bureaus who then report what was submitted and use a scoring model that makes up your credit score.

 Your credit score is a three digit number that ranges from 300-850 according to scoring models like Vantage Score and FICO. Credit scores can differ from lender to lender. Your personal information like race, religion, gender, and marital status does not factor into your score.

Credit history is a record of a consumer’s responsibility to repay their debts. This can determine whether a borrower has good or bad credit. A bad credit score ranges from 300-620 with subprime being 550-620. If you have a credit score under 620 it will be pretty hard getting good interest rate or getting approved for a loan at all. Failure to pay your debts on time will result in bad reporting on your credit history such as late payments, which will decrease your score and could eventually result in the inability to get approvals for new credit. 

On the other hand having a score over 700 is generally considered good and anything over 750 is considered excellent. With scores like these you are more than likely to get the best interest rates and lenders see you as a safe credit risk. Your credit history shows you are responsible with paying debts. 

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Typical qualifications consumers share with good and excellent credit:

· Never been 60+ days late on a bill

· Never declared bankruptcy

· $5K+ in available credit 

· 3+ years of credit card or loan experience

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