Polonius, a character in Shakespeares play Hamlet advises his son, Neither a lender nor a borrower be. With due respect to Polonius and his genius, credit has become a part and parcel of our life. While most of us cannot be lenders, we are bound to be borrowers because of the system we live with.
Consumer credit is a scheme to receive goods and services today in lieu of the payments made in future. When you use electricity, water, or post-paid telephone services, you are using credit, as the payment for these services will be paid later. These credits are not harmful but we have to be careful about the most used consumer credit options, i.e. credit cards, buying consumer goods on credit and easy financing etc
Uses and misuses of credit
Credit can be a great help in times of need but it can also destroy your finances if used carelessly. Using credit has two facets; it gives you immediate benefits in terms of increased productivity, conveniences, or just simple satisfaction to vanity; it also exerts financial and psychological costs. Use the credit only when the advantages outweigh the cost.
The uses of credit are humongous ranging from medical emergencies, education needs, and travel emergencies. Credit cards are usually very handy in most of these situations.
There are times when shopping stores (Pantaloon, Big Bazaar) issue credit cards jointly with a bank and provide 5%-10% cash back or discount. If you are a regular visitor to these stores, you should make use of this option. The only problem with this is that you end up shopping for things you do not need.
In todays world, a credit card is handy to make reservation in airlines, train, or hotels. While credit helps in many cases where it increases productivity; helps in medical emergency; or builds future growth as in higher education; its misuse can ruin the finances, make you bankrupt and dilute your creditworthiness.
Just because the credit card has a bigger limit, people tend to overspend. This is best avoided along with taking up 0% loans on consumer goods.
In addition to these habits, people have a tendency to pay just the minimum amount required. The liability becomes huge after some time.
Managing your credit capacity
It is important to build a good credit capacity (or rating) by judiciously using the credit options available to us. You need to consciously build a good credit score that will enable you