What is Credit

Credit is a type of finance, which is given by a bank, financial institution or an individual to the working of a business or even the initial set up. Today, the entire world runs on credit and the main reason behind this is the use of credit cards.

This was a concept, which came into existence with the use of credit purchases and credit sales in the business world. Thus, we can say that credit is a form of trust which one business party has on the other. For example, a business wants raw materials and does not have the money to pay for it, it asks the raw material supplier to give the materials by agreeing to pay the money once sales happen. This is known as a credit sale/purchase. This amount can also be paid in the form of installments. Under this method, the entire amount is divided into smaller amounts and paid on a monthly, quarterly or yearly basis. 

However, using the same credit concept, the use of credit cards became very popular. When a person opens a bank account, he can also avail the credit card. He can make purchases based on credit and pay the bills later through his bank account to all the parties from which he has made a purchase. When the credit card holder does not pay the entire amount in one installment, he is liable to pay a certain rate of interest as per the instructions, terms and policies of the bank.

It is very important to have a good credit score. With the vast use of credit cards, it has become mandatory to have a good credit score in order to avail any type of loan from a financial institution or a bank. A credit score will tell how you have dealt with credits in the past and this will become a prime requisite in acquiring a loan. A person who has not paid pack the credit bills on time and has taken over the line credit will not get a good credit score and this will affect the availability of a loan to him.

Credit is very important to run a business, as it will need a huge amount of money to function smoothly. However, you should know that credit is given only on the working capital of the business. Credit is also available for a personal purpose like a home loan. It is very evident that the world of business and commerce runs on the foundation of credit. Thus, we can call it a business of trust without which nothing will function.