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Credit Basics

The use of a credit card seemed very impressive in the past before they became widely used. Most people still view them as a good replacement of cash that can be used for the purchased of the desired items. However, you should not fall in the common illusion that credit cards are a substitute of cash. Rather, they represent the borrowing of money from the issuer, which should be returned at a specific point in time.

Credit Explanation

By the term credit one should understand the purchase of a good or services, which is not paid today, but instead is about to be paid at a future point in time. Credit allows people to afford things at times when they don't have enough cash to do so. However, you should be able to persuade a lender that you are reliable enough to be given this money. The latter is usually referred to as financial trustworthy.

Application for Credit

The application for credit precedes the establishment of credit with a specific financial entity. A research on your credit history will be done by the latter, which will be concentrated on your financial trustworthiness. If it is confirmed then you will be given the credit.

Different factors are applied in the determination of the financial trustworthy of a potential client. Some of them include:

  • Credit history

    In case you have previously used credit cards, the issuer will study your credit history to see whether you are a reliable client. The credit history includes information on the use of the credit in the past. It is used as a gauge of your potential future credit card behavior. The credit report and the credit score are used to report your credit history.

  • Employment, salary

    These are used in the lack of a credit history, which is observed when the client has not used credit before. Additionally, the credit issuer may agree to use the confirmation of a person who has an agreeable credit history to pay your debt in case you fail to do so.

Credit Terms

Guidelines on the appropriate and reasonable use of the credit will be provided by the lender. These guidelines include such issues as:

  • Frequency of payments of purchase sending
  • Late on a payment consequences
  • Cost of credit use

Credit limit is established by the lender, which represents the maximum amount the borrower can use. This credit limit is usually set with consideration of your credit history. Usually, you will be penalized if you exceed this credit limit, but you should refer to the terms of the lender to see whether it applies for your credit as well.

You will be also provided with a tool for using the credit, such as a credit card. The lender will send you a statement on the purchase you have made, as well as the interest rate you are being charged for the use of the credit, the minimum amount that is due and the payment you have to make. In order not to be penalized by the lender for late payment you should follow carefully your due date.

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