What is Credit?

Credit comes from the Latin word "creditus" which means "to believe." Credit allows you to buy things you might not be able to afford all at once by letting you pay over a period of time. But to obtain credit, a bank, or other type of creditor, must believe that you are trustworthy and responsible.

Let’s pretend you want to buy a car. The car you want costs $2,500, but you only have $500 saved. Although this is a great start, and it will make a good down payment, you still need $2,000 in order to drive the car off the lot today. If it has taken you several years to save $500, how are you going to get $2,000 in one day?

This is where credit steps in! The bank may be able to lend you the remaining $2,000 provided you have good credit.

Good credit is made up of many different things. When you go to the bank to get a loan, you will be asked to fill out a loan application. The things you fill in on this application all relate to your creditworthiness and will help the lender decide whether or not you will receive the loan. Some of these things include your full name, where you live and work, how much money you make, how long you have lived at your address, and how long you have had your job. The application will also have a place for you to fill in your savings and checking accounts and any other credit accounts you have or have had in the past. You will also need to explain how much money you need to borrow and why. After you have filled in all the blanks, you then sign the application stating that everything you have put down is true.

The next step is for the lender to double check your information and to also look into your credit history. A credit history is a record of all the credit transactions you have had in the past. Your credit report will tell how much money you currently owe other creditors, and it will show if you made all your payments on time. It is very important to keep your credit history clean, otherwise you may not get a loan when you need it.

You probably don’t have much credit history yet. So the first time you need to borrow money, you will need a cosigner. A cosigner is someone who lends you the benefits of his or her good credit history to help you get the loan you need. Your cosigner will be taking a risk, because if you mess up your loan payments, this will not only be a bad mark on your credit history, but also on your cosigner’s credit history. So before you ever get a loan be sure that you can always pay your payments on time.