What is Credit and Why it's Important?

Posted by Jaden Brown-swaby on

What Is Credit & Why Is It Important ?

Credit is the ability to borrow money/goods or services with the understanding that you will pay it back later.

Creditors grant credit based on their confidence that you can pay back what you borrowed, they can get a decent picture of this by checking things such as  your credit history. 

Your credit history shows your ability to repay any debts and is recorded in something called your Credit report.  a credit report details a range of things which include: the number of credit accounts , the type of accounts, how long each account has been open, amounts owed, the amount of available credit used, if your bills are paid on time, recent credit searches and of course your credit score. 

Credit is important because it provides flexibility when used right, allowing you to get something now and pay for it later. Credit will come in handy when it comes to large purchases like a  property or car. Credit can be leveraged allowing you to purchase assets whilst giving you the space to access essential products and services. You can also use credit to gain other rewards such as air miles and cash back as well as acting as an added layer of security. 

How Can I Build My Credit

There are several different ways you can start to build credit and in this section I will give you a few ideas you can tryout today. 

One of the easiest ways to start building credit is by joining the Electoral Roll, or in other words registering to vote meaning you’ll be able to place your vote in local elections. When I turned 18 this was the first thing I done to get the ball rolling with Credit building. 

Another way to start building your credit is by taking out a Phone contract . Sim only plans don’t count as it’ the phone part of the contract that helps boost your credit when payments are paid on time. Sim only contracts are a good way to build payment history helping  you work your way up to a contracted phone and a higher credit score. 

House hold bills will also help build your credit score. By putting your name on the Water, Gas or electric bill will help boost your credit by proving to future lenders that you’re responsible and  have a proven track recored of paying bills onetime. 

The aim of the game when it comes to building credit is creating a reliable track recored of making your payments onetime, paying off any debts and overall good money management. Sticking to these general rules you will help to increase your credit score and will start to create a positive credit history. 

What Are Credit Cards?

A lot of you have probably heard of a credit card and may be considering to get one. 

A credit card is a card issued by a financial institution commonly a bank where it enables the cardholder to borrow a set amount of funds called a Credit Limit. Cardholders agree to pay whatever money owed back With interest according to  the bank/institutions terms and conditions. This is usually along the lines of if the money is not paid back within the interest free period (usually 30 days) you will be charged x% on top each period until the debt is cleared being required to make a minimum payment in order not to default. 

Credit cards come with several pros but also have a a range of cons which can be detrimental to you Credit history and current financial position if you are not careful and responsible. 

PRO's Of a Credit Card 

One of the major pros of a credit card especially for people new too credit world include helping to build your credit history and increase credit rating if used right. in the first 2/3 months of using my own credit card I saw my credit score increase by over 140 points. Your credit card is reflected on your credit report meaning this will include all positive history such as on time payments and low credit limit ratios as well as negative ones.

 Another benefit of a credit card is Warranty and Purchase protection. Some credit cards can give you additional warranties or insurance that goes beyond the retailer or brands one so its always worth checking before hand. 

lastly in a lot of cases credit cards provide much better fraud protection than a debit card as long as you report the lost or theft in a timely manner. 

CON's Of a Credit Card 

The main downfall of credit cards will involve things such as debt, negative credit score effects and the cost. You must remember that all the money spent on your credit card is borrowed and not your own, as over spending can lead to debt. Everything you borrow must be paid back with at least a minimum payment being made at the end of each month. If you over spend this can make it very hard to maintain monthly payments which can easily lead to debt or strain your budget.

The second downside to credit cards are the negative impact they can have on your credit score and credit history. This can happen through a number of different ways including , late payments, maxing out your credit limit and applying for credit to often (hard searches) . These are all ways  that can cause your overall credit score to drop and don’t look good on you credit history especially late payments. 

Credit cards come with APR’s, this stands for annual percentage rates and the higher this number is will mean the more it will cost you to carry one months balance to another. Before taking out a credit card it is important to see what fees are attached checking whether you are charged for things like an overseas transactions , a balance transfer, withdrawing cash, late payment fee or a returned payment fee. What I would recommend to gain interest free borrowing is by always paying your bill off in full each month and never withdrawing cash if you really don’t have to. 

Where Can I Find My Credit Report ?

A question that may have popped into your mind is where can I find my credit score and credit report ?

There are two companies  I use personally which are Experian & Clearscore. By downloading  their app  you can have access you your credit score, credit history and monthly credit reports.  These apps come in handy when trying to build your credit score up as they show other ways to improve as well as helping you keep track of your credit.

I personally check my credit score once a month or once every two months to keep track of my credit progression. 

 Synopsis: 

Overall credit and your credit score/history is every important and worth looking after. If you don’t already use credit you will defiantly need to at some point in your life. Credit when used right can be a real game changer, allowing you to leverage someone else’s money to your advantage or grant you access  to things or opportunities that may be slightly out of reach. 


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