Credit DeMystified for the Borrower and Lender

Credit is a simple transaction that means the borrowing resources from one party to another. The party providing the finances is called the lender and the one taking advantage of them is the borrower. Since the borrower does not have to pay back a debt immediately it is called “credit.” In essence you could say that credit is a debt that does not have to be paid back immediately.  The debt itself is paid back according to conditions and terms agreed on by both parties.

In order for these agreements to succeed both parties must be in agreement. If debts are not paid back legal action, such as garnishing of wages or foreclosure on a home can take place. The resources that can be offered are also often dependent on the investment that has been made for a company.  The credit limit given to a credit card applicant is also often dependent on the excellence of the person’s credit report.

Your credit report tells lenders how many resources you are capable of drawing upon to pay off debt. If you do not have sufficient means to pay off a debt you may not be provided with financial lending services. This type of information is usually comuted according to your income, credit history and other sources of money.

Your credit rating does not have so much to do with how much money you have in the bank as it does to do with your trustworthiness. It can be seen as goods, services and even properties. It is seen to be as good as money, especially if you have a high credit rating. This is because having credit provides you with the ability to buy different types of items and then pay for them at a later time.

A Definition of Consumer Credit

This type of credit includes personal loans, credit cards and mortgages.  It is also sometimes called a credit line. Depending on how good your credit report is you can also use it to buy goods and services in exchange for a later payment. The better your credit report is the greater your chances are of getting a much higher credit line from the lender.

Although consumer credit seems like a good idea , borrowing from a credit card or credit line can get quite expensive. High service fees and interest rates can cause fees to skyrocket.  How these fees and interest rates affect you and how expensive they will turn out to be is negotiable. Sometimes fees are negotiable depending on the agreement that is in place between the lender and the borrower.  Sometimes these rates are included right in the debt and other times they are masked as monthly or annual payments or even concealed in annual percentage rates.

Aside from making a profit fees are in place because they help make sure that borrowers absolutely will pay in full and in a timely manner when it comes to paying off what they owe. At times these fees are increased if the borrower does not pay off his credit within the agreed upon length of time.

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