What is credit?

Written by: Rudy Freeman - on July 28th, 2006

What is "credit"? Let's spare all the fancy definitions and go straight to the practical meaning: credit is the ability to borrow money. OK, but why do we need credit? Well, if you always have enough cash to cover all daily activities, then you don't need credit at all! However, very few of us have enough cash to pay off our big purchases such as a house, a car, or even some furniture in the home.

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A state university student once complained: "Darn, I had to pawn my guitar to pay for my tuition because the financial aid checks were delayed. I ended up paying $300 to get it back." A good credit card could have saved him $300 for just a few days. The problem was that he had no credit. But he had to pay tuition by the deadline or his enrollment would be canceled.

In another case, an actuary who was laid off from her bankrupt insurance company ran out of cash. It took her almost six months to find another job in the area where she lived. Without sizable savings, she was desperate for new employment. Thanks to her good credit, however, she could pay her bills with cash advances from her credit cards and prolong the job search for six months.

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The stories above support the fact that good credit not only help with emergency situations, but also save us money in many circumstances. Let's say, you are offered a good job that you always wanted. But it requires a car which you don't have enough cash to buy. Without good credit, you may have to give up the job offer, even though it will not only help you pay for the car, but also brighten your future.

This website will help you understand the pros and cons of using credit, how to establish and maintain a good credit, how to manage your debts effectively, and other important things you should know about your credit that will save you money.