We encounter it every day - in the news, in our conversations and even in our wallet. It's credit. But how much do we know about this driving force of our economy and its effects in our everyday life?

Credit is a record of the amount of trust a business can have in an individual to loan them money. Credit helps lenders make decisions about lending by providing information about the potential customer's past.

"Credit is the probability of a person being able to pay off a loan," said Rory Vernon, a personal account representative for Deseret First Credit Union. "Our society is based off of credit. If you want to get a house or a car, it's a necessary thing."

Craig Martin, a junior studying exercise science from Alpine, said he realizes he needs to get a credit card now to start building his credit.

"The only exposure the average college student has to credit is when they use their credit cards," Martin said. "We need to change that so when we graduate and get in the real world we can use credit to our advantage."

Mark F. Zimbelman, a professor of accounting, talked about the real world applications of credit.

"Credit is one of the things that makes our economy work," Zimbelman said. "Our economy relies on lending money to businesses so they can grow and provide goods or services. To buy a home or to build a business, you have to have credit. Credit requires trust that the money will be repaid."

The Federal Trade Commission's Web site provides pointers on how to establish, build and maintain credit.

According to the Web site: "Credit is so much more than a plastic card. It's your financial trustworthiness.

"Having good credit means it will be easier for you to get loans and low interest rates. Low interest rates usually translate into smaller monthly payments. That's important when you borrow money for a car or a place to live. Sometimes, people even check your credit when you apply for a job."

Your financial status with BYU could also help or hurt your credit score. BYU now reports payment histories to credit bureaus.

According the financial service Web site: "Timely payments to BYU help you establish good credit. Late payments can affect your credit for years to come. BYU reports payment histories on loans, tuition and other accounts."

During Wall Street's roller coaster ride of the past few weeks, many students wonder what is causing the economic instability. Credit is a large part of it, referred to in the media as a credit crunch or credit crisis.

"The state the economy is in now is because trust has been diminished to a level that lenders, such as banks, aren't willing to lend," Zimbelman said. "In fact, banks won't even lend to one another. When lending stops, the economy basically freezes up leading to lost jobs since businesses can't provide goods or services."



Copyright Brigham Young University 22 Oct 2008