In today's high speed global economy, credit plays an

important role in enabling individuals and businesses to

achieve their financial goals ,as the ability to borrow money or
access goods and services with the promise of future payment,
credit is a mixed blessing that can foster growth and innovation
or lead to financial hardship if mismanaged. The significance of
credit extends beyond individual consumers; it influences
economic stability, shapes consumer behavior, and drives
business development.

Step one: understanding credit worthiness

Creditworthiness is a measure of how likely you will default on

your debt obligations according to a lender’s assessment, or
how worthy you are to receive new credit. Your
creditworthiness is what creditors consider before they approve
any new credit.

The decision that the lender makes is based on how you’ve

dealt with credit in the past.

Creditworthiness is determined by several factors, that lenders

consider when deciding whether to extend credit to you.

Factors that determine credit worthiness:

1. Credit History: Your track record of borrowing and repaying

debts is crucial. Lenders look at your credit report to see how
you've managed credit in the past.

2. Credit Score: This numerical representation of your

creditworthiness is based on the information in your credit
report. A higher credit score indicates lower risk to lenders.

3. Income and Employment: Lenders assess your income to

ensure you have the means to repay the loan. Stable
employment and a steady income can positively impact your
creditworthiness.
4. Debt-to-Income Ratio:This ratio compares your monthly debt
payments to your monthly income. Lenders want to see that
you have enough income to cover your debt obligations.

5. Payment History: Your history of making on-time payments is

crucial. Late payments can negatively impact your
creditworthiness.

6. Credit Utilization: This is the percentage of your available

credit that you're using. Keeping this ratio low can demonstrate
responsible credit management.

7. Length of Credit History: A longer credit history can show

lenders how you've managed credit over time.

8. Types of Credit: Having a mix of credit accounts, such as

credit cards, loans, and a mortgage, can positively impact your
creditworthiness.

9. Recent Credit Activity: Opening multiple new credit accounts

in a short period can signal financial distress and lower your
creditworthiness.

By understanding and managing these factors effectively, you

can work towards maintaining a good credit score and
improving your overall creditworthiness.

Step 2:important of credit score

A credit score is like a grade that shows how good you are at
managing your money and debts. It's a number that helps
lenders decide if they should give you a loan or credit card. The
higher your credit score, the more likely you are to get
approved for credit and maybe even get better interest rates.
It's based on things like your payment history, how much debt
you have, and how long you've had credit accounts. So, having
a good credit score is important if you want to borrow money in
the future.

Your credit score is crucial because it's like your financial report
card that lenders check before giving you a loan or credit card.
A good credit score can make it easier to get approved for
credit and may even help you secure better interest rates. It
indicates that you are responsible with the money you borrow
and how safely you will repay it back.

how do credit scores impact credit decisions:

Credit scores play a crucial role in credit decisions made by

lenders. Here are some keyways in which they impact those
decisions:

-loan approval
-interest rates
-credit limits
-insurance premiums
-rental application
-employment opportunities

Step 3: Debit card vs credit cards

What Is a Credit Card?

A credit card is a card issued by a financial institution, typically
a bank, and it enables the cardholder to borrow funds from that
institution. Cardholders agree to pay the money back with
interest, according to the institution’s terms. Credit cards are
issued in the following variety of categories:

 Standard cards
 Premium cards
 Rewards cards
 Balance transfer cards
 Secured credit cards
 Charge cards

Credit card users can reap cash, discounts, travel points, and
many other perks unavailable to debit cardholders by using
rewards cards. Rewards can be applied on a flat-rate basis or at
tiered rates.

Pros of Using Credit Cards

Credit cards can offer certain advantages over debit cards,
though they can also have some downsides.

Some of the pros include:

1. Convenience: Credit cards are widely accepted, making them

convenient for making purchases both in-store and online.

2. Build credit history: Responsible use of a credit card can help

you build a positive credit history, which is important for future
financial endeavors like applying for loans or mortgages.

3. Rewards and benefits: Many credit cards offer rewards such

as cashback, travel points, or discounts on purchases, providing
additional value for cardholders.

4. Consumer protection: Credit cards often come with

consumer protection features such as purchase protection,
fraud protection, and the ability to dispute charges.

5. Emergency funds: Credit cards can act as a source of

emergency funds when needed, providing a financial safety net
in unexpected situations.

Cons of Using Credit Cards

The main drawbacks of using credit cards involve debt, credit
score impacts, and cost.

Cons:
1. Debt accumulation: One of the main cons is the risk of
accumulating debt if you're not careful with your spending or if
you carry a balance from month to month, leading to high-
interest charges.

2. Interest charges: If you don't pay off your full balance each
month, you'll incur interest charges, which can add up over
time and increase the overall cost of your purchases.

3. Overspending: Having a credit card can sometimes make it

easier to overspend since you're not directly using your own
money at the moment of purchase, potentially leading to
financial strain.
4. Negative impact on credit: Mismanaging credit card
payments can negatively impact your credit score, making it
harder to access favorable loan terms or credit in the future.

5. Fees: Credit cards often come with various fees like annual
fees, late payment fees, and foreign transaction fees, which
can increase the cost of using the card.

Can Anyone Get a Credit Card?

Most people can apply for and receive a credit card, but if they
have a history of bad credit or no credit, the credit cards for
which they are eligible may not be as useful.

What Is a Debit Card?

A debit card is a payment card that makes payments by
deducting money directly from a consumer’s checking account,
rather than on loan from a bank or card issuer. Debit cards
offer the convenience of credit cards and many of the same
consumer protections when issued by major payment
processors such as Visa or Mastercard.

There are two types of debit cards that do not require the
customer to have a checking or savings account, in addition to
one standard type.

 Standard debit cards

 Electronic benefits transfer (EBT)
 Prepaid debit cards

your debit card could be an offline card. Offline debit cards are
not electronically connected to your account. There will be a lag
time between making a purchase and when the funds are taken
from your account.

Pros of using a credit card

1. No debt accumulation: With a debit card, you're using your
own money, so you won't accumulate debt like you might with
a credit card.

2. Budget control: Debit cards are linked directly to your bank

account, making it easier to track your spending and stay
within your budget.

3. Avoiding interest charges: Since you're spending your own

funds, you won't incur interest charges as you might with a
credit card if you carry a balance.

4. Easy access to cash: Debit cards also allow you to easily

withdraw cash from ATMs, providing quick access to funds
when needed.

5. Accepted widely: Debit cards are widely accepted, just like

credit cards, making them convenient for everyday purchases.
cons of using a debit card
1. Limited fraud protection: Debit cards may have less robust
fraud protection compared to credit cards, so it's important to
monitor your account for any unauthorized transactions.

2. No credit-building opportunity: Unlike credit cards, debit card

usage doesn't contribute to building a positive credit history,
which can be a disadvantage if you're looking to establish or
improve your credit score.

3. Potential for overdraft fees: If you spend more money than

you have in your account, you could incur overdraft fees, which
can add up quickly and increase the cost of using a debit card.

4. Delayed dispute resolution: Resolving disputes related to

debit card transactions can sometimes take longer than with
credit cards, potentially causing inconvenience if there are
issues with a purchase.

5. Limited rewards and benefits: Debit cards typically offer

fewer rewards and benefits compared to credit cards, so you
may miss out on cashback, travel points, or other perks that
credit card users enjoy.
Are Debit Cards the Same as Credit
Cards?
While they may look the same and feature similar features like
16-digit card numbers, expiration dates, and branded Visa or
MasterCard logos, credit cards and debit cards differ in
important ways. The key difference is that debit cards are
linked to a bank account and draw directly from those funds
(similar to a check). A credit card, on the other hand, does not
draw any money immediately and must be paid back in the
future, subject to any interest charges collected.

Is a Credit Card Safer Than a Debit

Card?
Credit cards usually offer greater consumer protections on
purchases related to fraud than debit cards. These fraud
protections may not extend as generously or easily to debit
card purchases.

Conclusion
Credit and debit cards may look alike, but their benefits and
drawbacks are very different. If building credit and cashing in
rewards is important to you, then credit cards are essential
tools for your financial journey. If you prefer to keep a tighter
rein on your finances, then a debit card is a better bet. No
matter which you choose, make sure that you know the fees
associated with each account.

Step 4 :credit vs store account

When it comes to retail purchases, both credit cards and store

cards help you afford your purchases, but they’re not the same.

What is a store account?

A store account is basically an account that you can open with

a specific store or retailer to make purchases on credit. It
allows you to buy items from that particular store and pay for
them later, often with added benefits like discounts or special
offers for account holders. Just like a credit card, you're
essentially borrowing money to make purchases, but the credit
is limited to that specific store.

BENEFITS OF STORE Account

Compared to a traditional credit card, store account differ in
the following ways:
-Application: Applying for a card in-store is quick and easy and
can be done at check-out with basic information and your ID,
which also makes it easier to be approved, while a credit card
requires proof of income and residence, plus minimum monthly
earnings.
A note of caution, just because it’s convenient to open credit at
your favourite retailer, be careful that you aren’t opening it on
a whim.

-Exclusive benefits: Most retailers provide additional discounts

and member-only deals when you open a store account
Build or rebuild credit: Since the criteria for approval are
different, a store account could be the only credit that someone
has access to. In this case, if used responsibly, it could help
(first-time) card users build a credit history.

-Higher rewards: Store accounts provide rewards that can be

spent specifically at that retailer or retail group. Sometimes,
the reward rate or cash back can be higher, which could make
shopping with your store accounts a cost-effective option if
managed well.

Disadvantages of using a store

account
-Limited use: A store Account can only be used at that specific
retailer or retailer group, making it less convenient to use
compared to a credit card that can be used anywhere and
anytime. You also can’t use it for as many reasons as a
traditional credit card. For example, you can’t access it for
emergencies, and it can’t be used for security deposits.
-Lower credit limits: The amount of credit you can access is
typically lower on a store credit card than on a traditional credit
card. Different interest rates: With a credit card, you can get a
personalised interest rate, but store account come with fixed
interest rates that can be higher than traditional cards.

-Limited rewards earned: Although there might be great perks,

exclusive offers and good loyalty rates, they can only be spent
at that retailer on those products, whereas normal credit card
rewards can be used for a variety of reasons at various
retailers.
Incentives encouraging overspending: ‘Good deals’ can be
tempting, but remember, they still cost money, so don’t be
seduced into spending more than you would’ve. Only use it to
buy what you intended to buy.

CHOOSING THE RIGHT ONE FOR YOU

If you’re a loyal customer who frequently spends significant
amounts at a specific retailer, a store credit card can be handy,
but if you only occasionally shop at a store or make small
purchases, it might serve you better to stick to a credit card.

KEEP IN MIND
If you already have a credit card, it might not be worth opening
a store credit card because an additional line of credit adds to
the percentage of credit you are using, which could lower your
credit score and make it difficult to access credit in the future.
And if you’re still deciding between a credit card or a store
card, it’s a good idea to first check how much you qualify for, so
you can make an informed decision.
Whether you have a credit card and/or a store credit card,
credit should be used purposefully and mindfully. It’s easy to
get carried away and spend more than you can afford to pay
back, which could lead to taking on unnecessary debt.

Step 5: credit terms and credit policies

Definition of Credit Terms
Credit terms are the payment terms mentioned on the invoice
at the time of buying goods. It is an agreement between the
buyer and seller about the timings and payment to be made for
the goods bought on credit. It is also known as payment terms

Types of Credit Terms



 1. Credit Limit: This is the maximum amount you can
borrow on a credit account. It's like a spending cap set by
the lender.

 2. Interest Rate: This is the cost of borrowing money,
usually expressed as an annual percentage rate (APR). It
determines how much you'll pay in interest on the
borrowed amount.

 3. Repayment Period: This is the timeframe within which
you need to repay the borrowed funds. It could be
monthly, quarterly, or based on other terms agreed upon.

 4. Fees: Various fees may be associated with credit, such
as annual fees, late payment fees, balance transfer fees,
or cash advance fees. These can impact the overall cost of
borrowing.

 Understanding these credit terms can help you manage
your credit responsibly and make informed financial
decisions.

Tips to Manage Credit Terms

Credit terms adopted by the businesses differ from each other
and the credit you would lend to a customer could be totally
different for another customer. There is no right or wrong about
the type of credit terms applied by you. It’s all about what
works better for your business, you and your customer.
Irrespective of the type of credit terms you choose, here are a
few tips which will help you to be on top of credit sales.
 o Mention the Credit terms on the Invoice
 Find and Set the Credit Period for each customer
 Credit Limit
 Overdue Notification

Credit policies explained

A credit policy is a set of terms that lays out how your company
will issue credit to its clients and collect unpaid debts. It also
specifies which team members in your company have the
authority to grant credit or change the terms of credit.

There are many reasons a good credit policy protects your

business:
 It standardizes credit qualifications, terms and procedures.
 It qualifies and disqualifies clients and customers for
credit.
 It defines credit payment terms, including prompt-
payment discounts, late penalties and interest rates.
 It sets maximum credit limits.
 It outlines steps for collecting outstanding debts.
 It specifies roles of team members in the credit process.

How to write a credit policy in 5

steps
When writing your business’ credit policy, here’s how you can
approach it in five steps:
1. Outline your goals
2. Define roles and responsibilities
3. Define credit evaluation criteria
4. Define your terms of sale
5. Define your collections processes
5 important items to clarify in your
credit policy
Credit policies can get complex fast. In addition to what we’ve
outlined above, here are some items you’ll want to include in
your credit policy to avoid any confusion around your credit
decision-making workflows.
 1. Credit limits
2. Payment terms
3. Accepted payment methods
4. Customer data needed
5. Bad debt policy

Let's break down the difference between credit terms and

credit policy:

Credit Terms:
- Credit terms refer to the specific conditions under which credit
is extended to a borrower. These terms outline how and when
the borrower needs to repay the borrowed funds.
- Common credit terms include the credit limit (the maximum
amount a borrower can charge), the interest rate (the cost of
borrowing), the repayment period (the time given to repay the
borrowed amount), and any fees associated with the credit.
- For example, a credit term could be a credit limit of
R18196.60 ,an interest rate of 15% , a repayment period of 30
days, and a late payment fee of R454

Credit Policy:
- Credit policy, on the other hand, is the set of guidelines and
rules that a lender uses to determine the creditworthiness of a
borrower and to manage the overall credit risk.
- Common components of a credit policy include the criteria
used to evaluate credit applications (such as credit score,
income verification, and debt-to-income ratio), the decision-
making process for approving or denying credit, and the
strategies for managing delinquent accounts.
- For instance, a credit policy may state that applicants need a
minimum credit score of 650, provide proof of income, and
have a debt-to-income ratio below 40% to be approved for
credit.

Understanding the distinction between credit terms and credit

policy is crucial for both borrowers and lenders to ensure
responsible and informed credit decisions.