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Posted on 7 January 2017 | 3,161 views

Credit Checks Determine if Your Creditworthy

Well, the notion of credit for a job well done extends beyond your personal, academic, or professional achievements and into your financial life. In the financial sense, credit is an agreement between a lender, a bank, credit union, credit card issuer, utility company, or other institution that has a financial stake—and a borrower.

The lender agrees to grant the borrower purchase power, usually in the form of cash or a line of credit. The borrower agrees to repay any sums borrowed plus interest. Lenders will perform a credit check to determine if the borrower is creditworthy. There are degrees of creditworthiness. If the borrower has a positive credit profile, the terms of the credit will be more favorable than for those who have negative information in their credit report.

There are several types of credit. The most common types of credit include loans and revolving credit, installment credit and credit cards. Within each of these types of credits, there is both secured and unsecured credit. Secured credit is when the borrower agrees to back the credit agreement with either a deposit or real property, such as a car, house, or other property. Unsecured credit is when the borrower is granted credit privileges without having to pledge a deposit or property. Most creditors will require a credit check be completed to determine a borrower’s creditworthiness.

Service credit is an arrangement between a utility and a customer in which the utility delivers a service—gas or oil, electricity, water, or sewer service to name a few — in exchange for a monthly payment by the borrower. The payment may be payment in full for services delivered in that month, or they may be a fixed budget amount with a “catch-up” payment made at the end of the term. Service credit isn’t reported to the credit bureaus unless you miss payments or the debt is sold to collections. If the customer has overpaid during the course of the term, which is usually a 12-month cycle, the service provider refunds the overpayment to the customer. Most service creditors now require customers submit to a credit check before granting credit privileges.

Credit Checks Determine if Your Creditworthy


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