Building and using credit is a financial skill that will help you in your journey towards financial wellness.
What are some benefits of credit? Let's find out.
Benefits of Credit
Buying, managing and repaying credit can be quite beneficial in the long run:
- Credit allows you the financial freedom and flexibility to purchase goods and services as and when you require, without worrying about liquid cash
- Credit helps you plan purchases like buying a laptop or a camera without borrowing from family or friends
- Managing and maintaining credit helps you to improve your credit score
- A good credit score can help you secure loans for bigger purchases like buying a home or a car
Types of Credit
Credit comes in a variety of forms. The most common form is bank credit or financial credit. Bank credit includes home loans, car loans, credit cards etc. The bank acts as a lender and loans the amount to you, while agreeing to a repayment plan within a specified time.
Credit can also be non-financial in nature. Two parties may agree to an exchange of goods and services in exchange for a deferred payment. For example, if you get groceries from a local grocery store and the store owner doesn’t ask for payment until the next month, then he is offering a type of credit to you.
So now that you know what is credit and how it works, you should be able to optimise it in your daily life and make better financial decisions.
