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How does credit work?

Credit is an agreement you have with a lender to obtain goods or services that you then pay for at a later date under agreed upon terms specified in a contract.

For example, if you get a loan, the lender will give you money and you will have to repay that loan over time along with interest and possibly other fees. The contract will specify what the interest rate is, how long the repayment term will last, what your payments will be and when they must be made, among other things.

Credit cards work in a similar way with similar requirements. The difference between a credit card and an installment loan is that you are given a limit up to which you can charge and you decide how much you will use.

You are actually borrowing the money when you make charge with a credit card and then you must pay it back.

Lenders report the credit agreements you have to credit reporting companies like Experian. The credit report serves as your financial references. If you manage your credit well, the credit report will be a powerful financial resource for you.

Check out the scope to hear answers to all the questions asked:

Do you have questions about credit?

Join our live video chat every Tuesday and Thursday at 2:30 p.m. ET on Periscope. Rod Griffin, Director of Public Education at Experian, is available to answer your questions live.

Scoped on: 08/04/2016

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