M4: Money Theories and Types of Credit (2)

• Our credit history is a measure of our ability to repay debts and demonstrated responsibility in repaying them. It is recorded in your credit report, which details the number and types of your credit accounts, how long each account has been open, amounts owed, the amount of available credit used, whether bills are paid on time, and the number of recent credit inquiries. Your credit report also contains information regarding whether we have any bankruptcies, liens, collections, or judgments (Brock, 2021).
• Good Credit History

  Basically, having a good credit history means paying your bills on time and not carrying large amounts of debt. It makes it easier to get credit cards, gives you better loan choices, and offers lower interest rates.
• Good Credit History

  The best way to maintain a good credit report is pay all your bills in full every month. You should have no more than three or four credit cards, keep their balances low, have them for a long period of time, and never use more than 30% of your available credit. Also, regularly check your credit reports and be aggressive about correcting any errors you find in them.
• Bad Credit History

  Conversely, those with a bad credit history do not pay their bills on time and maintain a good deal of outstanding debt. Factors that contribute to a bad credit history include late or missed payments, excessive credit card usage, applying for a lot of credit in a short window of time, and suffering major financial events such as bankruptcy, foreclosure, repossession, charge-offs, and settled accounts.
• Bad Credit History

  Bad credit can lead to difficulty in getting loans and credit cards, low credit limits with high interest rates, paying security deposits for things such as cell phones or apartment and car rentals, and being saddled with higher car insurance premiums.
• How did credit start?

  ● Barter – exchange of goods or services without the use of money, or trade one thing with another with

  equal value.

  ● Modernization has allowed credits to transpire, since it has allowed free flow of heavy volumes of transactions (international borders).
• How did credit start?

  ● Today, credit is defined as an arrangement to receive cash, goods or services now and pay later.

  *To a Lender: this connotes trust

  *To a Borrower: the capacity and willingness to pay.

  Transaction involving the transfer of goods, services, funds, property or rights, thereby creating an obligation on the part of those who receive them, that must be complied in the future (creditor and debtor
• Items that are being lend/credit.

  ● Goods – groceries, appliances, medicine, hardware (creditor/debtor).

  ● Services – car repair, beauty parlors, electricity (creditor/debtor).

  ● Funds – cash loans from pawn shops, banks, lending institutions, friends (lender/borrower).

  ● Property – car (rent a car), beach house (real property).

  ● Rights – possessions e.g., stocks, bonds, commercial paper, loan receivables.
• Types of Credit

  When we hear the word credit, the first thing that probably comes to mind is a credit card. However, there are actually three common types of credit accounts: revolving, installment and open. This article will help you learn more about them so you can navigate the world of finances with confidence.
• Revolving Credit - A revolving credit account allows you to borrow money against a line of credit and pay it back over time with monthly payments, which is often calculated as a percentage of your balance.

  
  

  Examples are credit cards, personal lines of credits, and home equity.
• Installment Credit - Installment credit comes in the form of a loan with a fixed loan amount, fixed payments and an established repayment schedule. Unlike revolving credit, installment credit gives you an exact timeframe to pay off what you borrow, generally over a period of months to years.

  
  

  Examples are personal loans, and housing mortgages.
• Charge Cards - This form of credit is often mistaken to be the same as a revolving credit card. However, the major difference between a credit card and a charge card is the credit card can carry a balance, whereas the charge card must be paid in full each month. If the balance is not paid on time and in full, penalty fees will be added.

  American Express is an example of a well-known charge card. This form of credit is advantageous against accumulating credit card debt.
• Non-installment Credit - This form of credit allows the borrower to pay for a service, membership, etc. at a later date. Generally, payment is due the month following the service, and unpaid balances will incur a fee, interest, and/or penalty charges. Continued non-payment will result in service cancellation and can be reported to the credit bureau, affecting your credit score. Service or non-installment agreements are very common in our everyday life.

  Cell phone, gas and electricity, water and garbage are all examples of service credit.
• GENERALIZATION:

  Credit is an essential part of various ventures and many households. Businesses use credit, households use credit and even several countries use credit. However, in order for a credit system to function properly, debts owed must be paid. When those debts fall behind, it is necessary to employ tactics to collect on owed debts.
• GENERALIZATION:

  Establishing appropriate credit policies without exception and collection procedures is vital to the success of any small business. As their customer base builds, and more and more customers want to pay by credit, they realize that they need to open up a credit card account or offer credit terms.