Credit Basics

What is Credit?


Credit means having the resources and ability to go into debt so that you can buy now and pay later. You borrow money from a bank or other lender or creditor, and agree to pay it back over a period of time. You pay a fee, usually an interest fee, for this service.

Today, banks and other lenders make it simple to use credit to buy just about anything. With so much access to credit, getting and abusing it can be easy. But, establishing and maintaining good credit is key to ensuring strong long-term financial health.

Poor credit can be fixed. Even if you’ve made some unhealthy financial decisions in the past, there are many things you can do to improve your credit. This site can help you find out your credit score, learn what it means, and help you to improve it so you can achieve your personal financial goals.

What is a Credit History?

Your credit history is an ongoing record of much of your financial life. It tracks the debt you have incurred with creditors including banks, stores, student loans, mortgages, car loans, and also includes things like your employment history and past addresses.

In addition, your credit history also tracks how you manage your debt. Late or missed payments are recorded as well as your debt-to-credit ratio.

Your credit history affects your credit and your financial future. Creditors look at your financial history using your credit report to determine how much money they are willing to lend you, and at what interest rate and terms.

There are many different types of credit including home mortgages car loans, small business loans or student loans and of course, credit cards. Remember, having a credit card means that the credit card company has agreed to lend you money. You are required pay that money back, usually with interest, for the convenience of borrowing those funds. It is not free money. There are two main types of credit cards:

With a charge card, you are required to pay the entire balance you spend at the end of each month. For example, if you spend $300, you are required to pay the entire $300 when you get your bill.

Revolving credit cards usually provide you a set amount of money, or credit limit, to use over an extended period of time. You can continue to use your card as long as you don’t go over your credit limit, and while some payment is required each month, you don’t have to pay the entire balance off at the end of each month.

Though there are only two main types of credit cards, every credit card is different in the credit limit, interest rate, and other fees and terms that they offer to customers. Learn more about these important details in Read the Fine Print.