credit, up a state of being in credit

credit, in?The state ofbeing ‘in credit’ is simply having a positive amount of money, as opposed to being in debt (sometimes ‘indebit’). It is possible to build up a state of being in credit wherever there is an account ofsome sort. For example with a standard utility account, if too much money ispaid into the account, the utility company might hold the amount in creditrather than pay it back, as it will count towards the following payment. Thisis likely to happen when the customer pays a fixed amount each month eventhough the amount of the utility varies from month to month; there could alsobe periods where the customer is in debit for the same reason.

A bank accountbeing in credit means that it is not in overdraft, that is, the amount ispositive.credit card?Physically,the credit card is a plastic card linked to a financial account. When the ownerof the card makes a purchase for products or services with it, the relevant amount ispaid to the supplier and the card owner’s account is debited by the sameamount. With most credit cards, the owner then has a period over which the debt can be repaidwithout earning interest,but after this period, interest will be charged on an ongoing basis. Thecontract will usually include a minimum payment, which will typically be apercentage of the outstandingbalance andwhich must be paid each month.

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Since the minimum payment is much smaller thanthe outstanding balance (often around 10% of it), it is possible to build uplarge amounts of debt on a credit card, up to the maximum allowed by the creditcard issuer which will in turn be calculated by personal status and credit rating. Once thelimit is reached, attempts at purchasing with the credit card will be declined.The advantage of a credit card is that it is a way of paying for items quicklyand securely, for use while online or phone shopping, or for buying thingswithout having the money available (or withdrawing cash from ATMs, forexample).

However this convenience comes at a cost, as credit cards usuallycharge high rates of interest compared with a standard loan or overdraftfacility.credit rating, credit score?A credit rating is a scoregiven by a creditrating agency with reference to an individual’s or anorganisation’s creditworthiness.The better a party’s rating, the more likely they are to: (a) get credit at all; (b) get creditat a better rate of interest;or (c) get credit above a certain amount. One’s credit rating will determinethe size of a mortgageor loan one cantake on. Factors taken into account include one’s history of debt, one’shistory of non-payment of bills or other debts, criminal records, income andexpenditure, but other factors such as where one lives might also be used asevidence of good or bad creditworthiness.

credit rating agency?A company that analyses aperson’s financial circumstances and history in order to provide a potentiallender with enough information to determine whether the applicant is safe tolend money to. Credit rating agencies do not ‘pass’ or ‘fail’ applicants – theymerely give a creditrating or a credit score to the potential lender who will usethis information to determine whether or not to lend, and if so, what interestrate should be charged, all based on the lender’s perception of risk of defaultpresented by the applicant. Credit rating agencies can also provide ratings forentire countries based on, for example, their governments’ policies anddeficits.

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