What exactly is credit?

Credit means that you are using someone else's money (usually a credit card company or a bank) to pay for things. It also means that you are making a promise to repay the money (the loan) to the person or company that loaned you the money.

A loan of any type includes both the principal—the amount of money borrowed—and the interest charged for the right to borrow the money.

Credit can be a useful tool. It enables many people to purchase large items, such as a house or car, that few can afford to buy with cash. The problem with credit is that many people see it as free money.

If you make credit card payments on time and repay your debts as promised, you’re building a good credit record. This will be an important factor in making major purchases in the future. When you have a good credit record, lenders feel more confident that you will be willing and able to pay back a new loan.

On the other hand, a poor credit record can affect your ability to make large purchases and may even hurt your ability to get a job.

Read on for tips on using credit cards responsibly, building a good credit history, and learning about your credit report.