Now that we have gone through the vital components of credit, we will continue the journey by defining what credit really is.
Credit is a contractual agreement between a borrower (you) and a lender (financial institution). In the agreement, the lender provides money or resources to the borrower and the borrower agrees to repay the lender back with interest. This also gives the borrower the ability to obtain goods or services without having actual cash. This agreement is, essentially, based on the trust that payments will be made in the future. Another way to look at credit is to see it as your “borrowing capacity.” When you develop the track record of paying back your debts, it increases the amounts you are able to borrow. This simple discipline will also determine the amount of goods and services you can access from a lender.
Now, the key word in that definition is trust. Trust means that your reputation and your integrity is being put on the line. When you have the reputation of paying back your debts, you earn good credit. Your financial reputation is directly responsible for building your credit. The better the reputation you build, the stronger your credit becomes. I believe that we all want to protect our reputation and maintain integrity. And one of the best ways to do this is through timely repayment of your debts. So as we step into the world of credit, let’s make sure we are ready for the journey. And if you have already taken the step but, somehow, got tripped up long the way, Empowering the Possibilities is here to help you complete the journey in the most successful way.