About Uses of Credit by Consumers

Credit is an important part of your financial life. Your credit score is determined by your credit history, which is based on how well you handle your available credit and existing debt. If you do not go into a lot of debt, and pay off all debt on time, you likely have a good credit score. A credit score of 660 or higher is considered good, according to Moolanomy. You can check your credit report for free each year at the Annual Credit Report website (see Resources). Consumers use credit in a number of ways.

Credit Cards

Adults or minors with a co-signer can apply for a credit card, which is essentially a line of credit you can use for purchases from businesses that accept credit cards as a form of payment. Once you use the card, you will receive a bill from the credit card company stating how much money you owe on your credit card balance. If you do not pay the bill in full, then the credit card company charges you interest on your balance until it is paid. Keeping a low balance on credit cards is generally good for your credit score, as long as you make all payments on time. But if you miss payments or drive up the balance toward your available credit limit, your credit score will be negatively affected.

Home and Car Loans

Consumers also use credit to apply for loans to buy a home or car. People with good credit often get approved for home or car loans with a better interest rate or for a higher amount than people with bad credit scores. If your credit score is low, then you might not get approved at all. You can work to improve your credit score buy getting out of debt and bringing all loan and account balances current.

Other Loans and Purchases

Your credit score determines your eligibility for a number of other types of loans or purchases. Home equity loans, personal bank loans, business loans or the ability to refinance existing loans are all affected by your credit score. Similarly, many retailers offer the ability to finance purchases based on your credit. For example, you might be able to buy home appliances or expensive electronics from a store if you have good credit, even if you cannot afford the item at the time you buy it. The store will take out a line of credit for you and you then make monthly payments on the account until the item is paid in full. You might also have to pay interest on your balance until it is paid off.

Employment

Your credit also affects your ability to get a job. Employers have the right to check your credit before hiring you. Not all companies do this or care about your credit, but if you are applying for a job in finance, government or for a role as an executive, you should ensure your credit score is good, because chances are your employer will check your credit report. If the report is bad, it could cost you a job offer.