What is credit and how does it work?
Curious about Credit and Funding
Credit is a financial term used to describe a transaction where a lender extends money or resources to a borrower with the expectation that the borrower will repay the lender in the future, often with added interest or fees. It can also refer to the borrower's reputation for paying back debts, known as their creditworthiness.
Credit works by providing a way for borrowers to access funds they need for a variety of reasons, such as buying a home, starting a business, or making a large purchase. The lender evaluates the borrower's creditworthiness by reviewing their credit history, income, and other financial factors. Based on this evaluation, the lender determines whether to extend credit to the borrower, and if so, the terms of the loan or credit arrangement, including the interest rate, repayment period, and any fees or penalties.
When the borrower receives the credit, they are expected to use it responsibly and make payments according to the agreedupon terms. As the borrower repays the loan or credit, they build a positive credit history, which can improve their creditworthiness and make it easier to obtain credit in the future. If the borrower fails to repay the loan or credit, they may damage their credit history and face consequences such as penalties, fees, and legal action.