What Is Credit?
Credit is a word used to describe when you borrow money and pay it back in installments. When it comes to borrowing money such as taking out a credit card or applying for a mortgage, your credit shows your reputation as a borrower and can affect your ability to take out a loan.
Your credit score tells lenders how likely you are to repay your loans. This helps them to decide whether or not they want to lend you the money to use, and it will also dictate the interest rate you are given if you are accepted for a loan.
What Is a Credit Report?
Think of your credit report like your personal record but for your finance. It records every single piece of credit you’ve had against your account, as well as showing your payment history, the amount of debt you may or may not owe, and the type of credit you currently have. All of these factors are what goes into calculating your credit score and deciding whether or not you are able to get a loan.
What Are Credit Bureaus?
Credit bureaus are agencies which collect all of your credit information and place them into your credit report. They get the information from public record, lenders you have worked with and other sources. Their job is to distribute that knowledge to either your lender when they request to see your history, or you if you want to access your credit report.
There are three main credit bureaus out there, and they all calculate your credit score in their own way. If you ever find that your credit score is unusually low one month, you may want to get access to your credit report to check for any errors or fraudulent activity.
What Is Credit Scoring?
Credit scores are a numerical value which is generated by compiling information on a number of factors and assessing your financial viability. A score over 720 will usually result in automatically being accepted for a loan, and one which is way below that may need the help of fast credit repair services to get the score back up the scratch. Your credit score can affect your ability to take out a loan because it will tell the lender whether you have a history of always paying on time, or a history of late or missed payments. Would you want to lend money to someone you knew had a history of not paying it back?
What Is Credit Used For?
Credit is used for several things:
Borrowing money: the most common use for credit is borrowing money, as we have discussed above.
Insurance coverage: insurers may check your credit before offering insurance, and this may lead to an increased interest rate.
Employment: if you are applying for a role in the accounting industry, you credit history will be checked to make sure that you are financially stable before offering advice to others. This way you are seen as safe to offer advice on money.
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