Credit is a term used to describe any situation in which goods, services or money are received in exchange for a promise to pay a definite sum of money at a future date. Advertisements on TV, radio, and in magazines would have people believe that bad credit is no problem. They promise quick, easy financing even if there’s been a bankruptcy! It may make a person believe that good credit isn’t that important anymore. But don’t be fooled! Having good credit usually means a person will be eligible for a better interest rate on loans. Think about the difference this can make in mortgage or car payments.

Pros and Cons of Credit

Pros Convenience. Record of purchases. Debt consolidation. Higher education costs. Over the phone and/or Internet purchases. Cons Finance charges. Annual fees. Late payment fees. Greater chance to overspend. Risk of fraud, loss of privacy, and/or identity theft.

Types:

Revolving Credit This is credit that is extended in advance of any transaction; so that the borrower does not need to reapply each time credit is desired. Credit cards are a good example of revolving credit. As the principal is repaid, it can be used again for advances. Installment Credit With installment credit, the borrower must repay the amount owed in a specific number of equal payments, usually monthly.