What is credit?

Learn About Credit 101: Lesson 1 of 4

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The credit we are talking about in this lesson is “consumer credit” so let’s get started with a basic definition of credit according to Wikipedia:

“Consumer credit can be defined as ‘money, goods or services provided to an individual in lieu of payment.’ Common forms of consumer credit include credit cards, store cards, motor (auto) finance, personal loans (installment loans), retail loans (retail installment loans) and mortgages.”

Basically, this means that you get what you need or want NOW, but pay later. Your promise to pay later is the “credit” extended to you, the borrower, by the lender. More from this article:

“The cost of credit is the additional amount, over and above the amount borrowed, that the borrower has to pay. It includes interest, arrangement fees and any other charges. Some costs are mandatory, required by the lender as an integral part of the credit agreement.”

Credit is not free since there are penalties and fees that can add a substantial amount to your total “cost” of borrowing.

Take some time to research “credit” and the above links on Wikipedia since they are very useful and can give you an informative perspective on all the subjects related to “credit” and the industry it has created.

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