So, what exactly is credit?
Sure, we all assume credit is borrowing money from a source and using it as our own.
But, isn't there more to it than that?
The answer: Yes.
Wikipedia defines credit as "[O]ne party granting a loan to another party where that second party does not reimburse the first party immediately, thereby generating a debt, and instead arranges either to repay or return those resources of equal value at a later date."
But if this is the definition, is our original hypothesis wrong then?
The answer: Not necessarily.
Let me explain myself. Yes, credit is receiving a loan from another, but there is more to it than that. When you borrow money, you are also borrowing from your credit score. Each time an individual signs up for one form of credit or another, a small amount is taken away from their score. The more credit you withdrawal, the lower the score you end up having. And as most know, having too low a score also has its consequences.
When someone's credit score falls too low they are much less likely to be approved for further debt. Often, low scores prevent people from approval of credit cards, purchasing automobiles, taking out loans, filing for financial aid, refinancing mortgage loans, and so on. I'm not say this is an impossibility, just that it makes the process a bit more challenging.
Another interesting tidbit of information regarding credit occurs when seeking help getting out of debt. A majority of people believe that signing up with a debt relief company ruins your credit, but what they don't know is that it can actually do quit the opposite. Unbeknownst to some, unsecured debt accounts for thirty percent of your credit score. So once you have paid off your debt, your credit report score returns to good standing.
Well, I hope I've at least provided a little solace in your attempts to get back on your financial feet. Just remember, it's not the end of the world and keep moving forward.
