What is Credit?

From Qualitas Education – The Qualitas of Life Foundation


The Qualitas of Life Foundation knows the importance of credit cannot be overstated. In addition to being vital to building long-term wealth, credit can mean the difference between being able to purchase a home or not. Still, this often-used resource can seem confusing or even unattainable for some. Let us help break it down for you.

What Exactly is Credit?

Credit is a powerful financial tool that allows you to borrow money now to buy goods or services with the understanding that you’ll pay later.

Credit involves two parties: a creditor and a borrower. A creditor, such as a financial institution, will lend a borrower an amount of money (through either a credit card or loan) that depends on their confidence that the individual will pay it back.

After a given time period, the borrower is expected to pay the creditor the same amount of money, along with any finance charges, back.

What Is A Credit Score?

A credit score and a credit report provide a snapshot of the financial habits that financial institutions, cell phone companies, credit card companies, employers and others use to get a sense of your creditworthiness. A credit report is basically a report card that describes how well you are at paying back your credit, while a credit score is a number that ranges from 300 to 850 that tells financial institutions about your creditworthiness.

Having a higher, or “good,” credit score, is extremely helpful.  A higher credit score lets you borrow money at lower interest rates, meaning you will have to pay back a lower additional cost.



Your credit score is based on a number of financial aspects, including:

  • 35% – Your payment history. For instance, did you make a payment on time? Did you skip any payments?
  • 30% – How much you owe. You’ll want to use no more than 30% of your total available credit at any time. For instance, if your credit limit is $10,000, you want to use no more than $3,000.
  • 15% – The length of your credit history. For instance, how long have you demonstrated healthy credit habits?
  • 10% – The type of credit used. Do you have a mix of credit types? Note that you don’t need to use all types of credit to have a good credit score.

How Can I Manage My Credit?

To manage your credit, and maintain a high credit score, follow the below tips:

  • Pay your bills on time
  • Keep the balance of what you owe low
  • Do not spend more than 30% of your available credit at any time
  • Check your credit ratings at least once a year
  • Pay the full amount you owe each month, or pay more than the minimum balance
  • Check your account statement to make sure all listed purchases are correct
  • Request and review your credit report
  • If you leave the country or move, make sure to continue paying your credit bills

Qualitas of Life Foundation and Master Your Card work hand-in-hand to help communities build their financial knowledge for a brighter future. You can learn more about credit – and Qualitas – at www.qualitasoflife.org.

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