Credit Questions Answered
Posted 22/03/2017 by BrightHouse Social Team
As its Credit Education Month, we thought we’d take a look at some of the most commonly asked questions around credit, and provide some answers. There are lots of specialised terms used when talking about credit and making purchases on credit, it’s easy to lose track of what everything means.
We’re going to cut through the jargon and hopefully make credit easy to understand, as well as provide some tips on managing it properly.
What is Credit?
Credit is when a company agrees to provide you with a product or service before you pay for it in full. In exchange for providing it before full payment's received you generally have to pay a fixed amount each week, month or year with interest added.
What is Credit For?
As we’ve said, there are lots of reasons why you might need credit. Most people don’t have the spare money to buy a new smartphone or a new car so contracts, so credit agreements make it more manageable and affordable.
It’s the same if you want to buy anything from a house to a washing machine, when credit is often the best option for many people.
– This is the total amount that a lender will agree to offer you in credit, also sometimes known as a credit limit.
– This is the money a lender will charge on the amount you borrow, worked out as a percentage of the total.
– The Annual Percentage Rate, or APR, is a way of showing how much interest you will pay each year on the product or products that you are buying from BrightHouse. The rate of your APR will depend on a number of factors including your credit rating and your repayment history.
– A person's credit rating is a number which expresses what kind of credit risk they are to a lender. It is calculated by a credit reference agency using a wide range of information including payment history, levels of debt and time spent living at the same address.
What Affects Your Credit Rating?
Being refused credit can often be due to a bad credit rating or score, but a bad score isn’t always what it sounds like. A low credit rating can be due to having never borrowed money before, or having used only a small amount of credit in the past. It can also be due to mistakes on your credit report such as an old address, or because you’re not registered to vote.
Of course, bad credit can also be due to missing credit card or loan payments, which potential lenders look on as a higher risk factor. Always keep up to date with credit repayments to avoid this problem, using automatic direct debits if you can.
Find out more about credit agreements at BrightHouse on our On Finance