Introduction to Credit

World of Credit

When anyone hears the word credit, almost instantaneously, the individual will link negative connotations to this terminology. A curious question to ask is a big Why? The reason behind such negativity is due to the incapacity to remunerate upfront costs to a seller hence owing in the form of credit term. At times, creditors issue debts to lenders and give them attractive interest rates that cannot be refused hence leading to credit being involved.

Who has Authority to 'create' Credit?

Have you ever wonder on how credit is being developed from nothing? Indeed, there is an institution that creates credit through printing money out of nothing! Yes, the Central Bank has the authority to distribute credits to retail & commercial banks at any given time. Strictly regulated by the members of Parliament, who held meaningful discussions regarding monetary programs, the Central bank issues debenture to the underlying banking institutions to stimulate the economy with the aim of building up infrastructures and improve consumers' standard of living. Certainly, expansionary & contractionary policies are being developed and the bill has to pass through the Senate and cabinet ministers before officially taken up as Credit.

How is Credit going to help me?

Governing the country's welfare, including communal living costs, the relevant authorities are taking up credits to enhance & generate the economy, indirectly benefiting you. Based on the policy, retail banks have greater flexibility in accessing higher credit sources which in turn, being able to disburse more personal loans to borrowers.

Upon granting loan approvals, you have more choices in leveraging with more borrowed cash to improve the standards of living by prudently allocating resources. Some of you might adopt a conservative approach by saving up, others more risk-adverse to penetrate equity investments and the remainders to upgrade their current lifestyle to afford luxury. As more money supply is flowing around the economy, the rate of returns may be higher and the dividends act as bonuses to you - either repaying costs of borrowings (also known as interest rates) or reinvest the proceeds to achieve meaningful distributions.

Net-Net yields, credit seems to help generate a vibrant mobility which aid to beef up by progressively showing you to the desired lifestyles.

How much Credit is desirable?

Here comes the crucial question on borrowing the optimal amount of debts. In the first place, no one individual has the same set of requirements hence there is no one-size-fits-all. As a lender, your credit limit is highly dependent on several factors mainly wages, personal income taxes and key retirement contribution funds. The general consensus is to leverage up to 4 times the last drawn pay for personal loans.

In the current low interest rate environment, leverage actively boosts your overall financial status to higher altitudes if proper planning is done with a clear mind - rational decisions. However, the market may turn against you should unproductive habits are being adopted hence stay rational with every judgements.

While there are social safety nets in place, never rely on government grants or pension funds and speculate everything on Credit Lines (OBL). Prevention is always better than Cure!