How Does Credit Accumulate?

Introduction

Credit is one of the most important financial aspects of your life. It affects whether you can buy a new car or house or qualify for a loan, and the type of job you are able to obtain. Here's how exactly can you accumulate not only credit, but good credit.

Credit Cards

Credit cards are one of the most common and popular ways to accumulate credit. A credit card can come from a variety of lenders and constitutes a line of cash that the lender loans out to the card holder up to a specific limit. You gain credit from the credit card lender by paying your bills on time and keeping your card balance at a low percentage to the available credit limit.

Loans

Loans are another way to accumulate credit. Like credit cards, loans act as a line of cash that a lender loans to you to use for personal or business matters. The only difference is that a loan usually comes as cash all at once and is considered settled once the balance is paid back while a credit card continues with the same available line of credit until you cancel the credit card or neglect to pay your monthly bills. You accumulate credit through loans by paying off your loan within the agreed time line in your loan terms. Loans may be for houses, cars, school or a host of other items.

Financing

Financing is another way to accumulate credit. Financing is a tool most often used by businesses for their clients or for stores for their customers. A line of credit works like a credit card or loan in that the lender extends to you a line of cash or gives you merchandise in exchange for the promise that you will pay them back. You accumulate credit through this by paying back the item in monthly payments by the terms of the agreement. You accumulate credit through this by paying on time.

Conclusion

There are two different kind of credit that you can accumulate. You can either accumulate bad credit, or good credit. Good credit is achieved by staying vigilant and abiding by the terms of your credit agreements. Paying on time is crucial to accumulating good credit. On the other hand, you can accumulate bad credit by paying late or not honoring the credit terms and agreements.