Credit originates from the Latin which means ‘I Believe’, or a practice that the provision of resources from one person to another with a promise to repay or provide recompense at a future date. The resources that are provided can be in money or goods and services.
The person who provides the resources is called the lender or creditor, and the person who receives the resources is called the borrower or debtor. A loan is usually extended in terms of money so as to have a common form of identity for commerce and the ability to understand exactly what is being transferred and the amounts involved in responsibility of repayment.
A loan is only extended to people who have proven themselves to be a good risk. In other words, they have proven themselves to be able to take a loan and pay it back on a timely basis, according to the terms outlined in the agreement. A person or entity that has a poor record of handling money may be denied resources in certain circumstances.
A score has been developed in order to rank individuals and businesses according to their ability to pay back loans that they have had in the past. The higher the score, the better is that individual’s ability to pay back previous loaned amounts. The lower the score, the less likely the individual is able to pay back loans.
There is a cost for borrowing which is expressed in the interest rate placed upon the loan. An individual or business that has a lower score will pay a higher interest rate than will a person with a higher score. The score can be enhanced by not taking out frivolous loans, by paying debts on time, and generally keeping good financial habits.
There are many ways to find out your credit score, some of which allow you to apply directly to Equifax, Experian and TransUnion, the three main agencies. They will furnish you with the current and most up-to-date report. In this report, you will see your latest purchases along with the report scores which are the latest items to be posted as purchases and will affect your scores.
Each time you pay off a debt or take out more debt, your score will changed based upon your history. If you are late on some payments, it could drop your score down a rank or two. It is always wise to check your report from time to time to check to make sure it is accurate.
Guarding your score is a valuable habit to get into. A neglected credit score could cause some embarrassment at some time in the future if a person needs a loan or line of credit to pay for an item and gets turned down. Keeping a good record will insure future needs and can be an example to others.