What is Credit and How Important Is It?

This post may contain affiliate links. Please see Full Disclosure Policy for more information.
What is Credit Anyhow?
What is Credit

What is Credit Exactly?

Credit is a contractual agreement that you enter into with a company or person for money or goods with the intention of paying for it later. You agree to pay them based on their contract. If you default on that debt then you are looking at high fees, increases in interest rate and in many cases, financial legal obligations as well.

Our credit is looked at to determine if we are financially trustworthy and dependable. Our borrowing capacity is determined by the creditor.

Did you know – Many don’t know much about credit, creditors, collectors or our rights. If a creditor or collection agency is trying to collect a debt, they must provide you with valid proof that you owe that money. In many cases your debt is sold at a discount to a collection agency and it can be sold over and over again. They then try to collect from you after they have tacked on their fees.

Here is an Example of What Happened to Me

What is credit in regards to collection agencies? Keep reading. A 3rd party collection agency contacted me last year to collect a debt on a department store card I had in 1996. I asked the collector to provide proof that I owed said $240.00 and she could not. She only had her company’s paperwork available to her. I asked her to email me their address and I would send her the letter from the original creditor (store) showing I closed that account with a zero balance. I requested the email so that I could start a paper trail and from then on, all correspondence will be done on paper. Needless to say, I have not heard back from them. Get everything in writing.

Every single time I close an account I request a letter stating that the account has been paid off and is closed. I keep every letter I get and file it in my filing cabinet. As you can see the letter from 1996 came in handy.

What Is Credit and Who Looks at It?
  • Potential employers
  • Mortgage lenders/landlords
  • Insurance companies: auto/homeowners/renters
  • Department of Motor Vehicles
  • Electric/phone/cable companies
  • Banks, for checking/savings/loans
  • Credit card companies
Stepping Back in Time

I learned the “what is credit” lesson the hard way. In 1984 I turned 18 and suddenly I had every credit card you can think of. I spent 5 years getting into trouble, 10 years getting out of it and the next 11 years being patient and working hard to rebuild my credit. I refused to file bankruptcy, I worked 2-3 jobs at a time, I paid 17.9% for a car loan, which was the only choice I had at the time, but I prevailed!

My credit has been flawless for years now and my credit score is in the 800’s. To me, that report is worth framing. My husband is in the same condition as well. We do have debt. I have been very open about that. Once again we were pay check to pay check and it was getting worse but we were able to maintain our good credit. Read our story to see what we are doing to get ourselves under control.

Plan For Your Future Now

Answer the what is credit question not because your credit is important. Never have the outlook of ‘my credit is trashed so it doesn’t matter.’ It does matter and if yours is in bad condition right now, it can be repaired. Where do you want to be in 10 years? Regardless if you are 25 or 65, plan for your future now. Only you can determine what you want for yourself. Only you know what your current situation is and only you can decide to work toward a debt free, solidly invested & planned future.


Learn More About Managing the Money Here


  1. Great article!
    Very proud of my credit score and God willing (and self control on our parts) it will stay up in the 800’s. Luckily hubby has a high one also. I wasn’t so sure when we first got together and I found all these little ‘owe some here, owe some there’ bills and some credit card bills from a previous marriage that he’d just been paying minimum on!!!!! Needless to say I got rid of those bills immediately!

    When we re-fi’d the house for lower rate, since we had no other debt (small car loan now though) we continued to pay the same monthly pay’t as before to reduce the prin more. Want it paid off before he retires in 6-8 years. house pay’t was something new to me as mine had been paid for years until we got married and moved to another city. Didn’t realize how lucky I was on lower property taxes because of lower assessment and lower homeowner’s ins because of living where there were fire hydrants!!!! My plans are to sell this one before he retires (if it sells) and downsize and pocket the extra money monthly, but still making the higher payments in case it doesn’t sell.
    And my broker now says we should double the amount of money we have in emergency fund because ‘as you get older it will become harder to replace that money if you need it’. Not sure if i need to take that advice or not. If I do, there goes our camper fund 🙁

    • Renee it sounds like you definitely have things under control. My biggest struggle was showing my husband what we were doing and the negative impact it is having on us. I am 45 and my husband is 52. Time is running out on us as far as financial security is concerned. I really like the way your broker put it, he is absolutely right.
      I plan on using those words on my husband, thank you very much!!! While my husband has come a long way, he has a little further to go. his financial priorities are 80% there.

Speak Your Mind


92d3fe425d250a07f0690e7b9446fd75d36d34df8c1539a41f 92d3fe425d250a07f0690e7b9446fd75d36d34df8c1539a41f