Financial Growth Series: What Is Credit & Why Is It Important


Its important that everyone knows the truth about credit and how it works. For some and for most inner city children, growing up learning about how to properly use money (spending habits and saving) and financial topics such as credit, loans,  life insurance, stocks, bonds and all types of investing were not taught or were not taught properly, especially in school and if it was taught in school (JHS, High School) it was very limited with just basic common knowledge lessons. These lessons may have been so limited that most of us didn’t really care about it for two reasons; one reason being is because we were children and/or teenagers and there were just other things that were more important in our young adult lives and two we thought we would figure it out when we got to college (for those that went) or just figure it out as we became adults (the we got all the time in the wold mindset most young adults have).

Most people don’t learn the truth about credit and fiances and the importance of it until it starts to affect their lives in a negative way. By the time they hit college they are offered a vast amount of loans and credit cards not truly understanding what comes with getting these things and (depending on if they have or don’t have parental financial help) how long they will have to deal with the issues from the debt by the time their college years is up and for a lot of people the debt lasting years after graduation and as full grown adults it’s affecting their credit. That is just one example on the lack of knowledge about credit and how it can impact your life, there are many other examples that can show up in your life as a lack of knowledge of fiance and credit such as paying your bills late, having credit cards or department store cards and not paying them off or paying them off in total in a short period of time after use, court rulings and so many other problems and issues that can effect your fiances and credit and I will cover those issues as well in future posts, this post will be about two questions we all should know the answers to so that we can get a better understanding of it to properly help in getting control and growing our financial situations for the better. 


Credit is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately, but promises either to repay or return those resources at a later date. Credit is borrowed money that you can use to purchase goods and services when you need them. You get credit from a credit grantor, whom you agree to pay back the amount you spent, plus applicable finance charges, at an agreed-upon time.


  1. Revolving credit With revolving credit, you are given a maximum credit limit, and you can make charges up to that limit. Each month, you carry a balance (or revolve the debt) and make a payment. Most credit cards are a form of revolving credit.
  2. Charge cards While they often look like revolving credit cards and are used in the same way, charge accounts differ in that you must pay the total balance every month.
  3. Service credit Your agreements with service providers are all credit arrangements. You receive electricity, cellular phone service, gym membership, etc., with the agreement that you will pay for them each month. Not all service accounts are reported in your credit history.
  4. Installment credit With installment credit, a creditor loans you a specific amount of money, and you agree to repay the money and interest in regular installments of a fixed amount over a set period of time. Car loans and mortgages are two examples of installment credit.


Good credit is necessary if you plan to use credit to make a major purchase, such as a car or a home, or want to be able to take advantage of the convenience credit can provide. The importance of good credit also extends beyond purchases, in that your credit information may be used by potential employers and landlords as part of the selection process. 

Credit grantors review credit applications and credit reports to determine financial risk: If they lend you money, extend you credit or give you goods and services, will you pay them back? They may consider your income, how long you’ve lived at your present address, how long you’ve worked for the same employer, what kinds of assets you have and the balances of your bank accounts. Often, though, the primary resource guiding their decision is your credit information. 


A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report information typically sourced from credit bureaus. Your credit score is a three-digit number that relates to how likely you are to repay debt. Banks and lenders use it to decide whether they’ll approve you for a credit card or loan.

The three main credit bureaus – Equifax, Experian and TransUnion – create your credit reports, which credit scoring models like VantageScore and FICO use to come up with a score that typically ranges from 300-850. The credit bureaus can also calculate scores for you based on their own proprietary models.

Your scores are typically based on things like how often you make payments on time and how many accounts you have in good standing.


Fair Isaac Corporation, or FICO, creates a variety of credit scores for use by lenders, credit card issuers and other creditors. Your FICO scores which typically range from 300 to 850 could affect whether your credit application gets accepted, and the terms and rates you’re offered.


In the U.S., there are three national credit bureaus (Equifax, Experian and TransUnion) that compete to capture, update and store credit histories on most U.S. consumers. While most of the information collected on consumers by the three credit bureaus is similar, there are differences. 


How to access your report. You can request a free copy of your credit report from each of three major credit reporting agencies – Equifax®, Experian®, and TransUnion® – once each year at or call toll-free 1-877-322-8228.

Or you can check these legal and legit websites below

Credit karma



I hope you have a better understanding about What Credit Is and How Important It Is. Use the information to start fixing your financial situations. I will be doing more post on credit in the future and ways to clean your credit and different way we all can raise our scores.