Credit: The Future Tense of Money
Credit: “is an agreement to buy something and pay later”.
Future tense: “is a verb form that generally marks the event described by the verb as not having happened yet, but expected to happen in the future”.
The use of credit making purchases has been around for quite some time now, in fact some may say it goes back to Biblical times and the money lenders in the Temple.
If you are not into that history lesson, the use of credit still goes back hundreds of years, however, it was only until the 20th Century that the use of credit got as they say, interesting.
Today when we make a purchase, more and more of us are using plastic, debit cards, credit cards, our mobile phones, anything but cash, but if you go back 60 or more years ago, this was not the case.
We used cash for most purchases. There was credit available, and if we needed to make a large purchase, such as for a fridge, washing machine, or some other large costly item, we could take out a loan, or in many instances, the local shop extended a form of credit to make the purchase.
There were no debit cards, only cheques, and while there were credit cards, they were in limited use by businessmen who travelled.
That all changed just over 60 years ago with the “Fresno Drop”.
Back in the day when no one really used credit cards, a clever and enterprising bank, Bank of America, decided if the masses will not come to the mountain, we will drop the mountain on the masses.
Thus became the Fresno Drop.
To make a great and long story short, Bank of America created a credit card, “BankAmericard”, and proceeded to give them to 500 or so households across the Fresno area in California.
Just post off the credit cards to the households, giving them a set credit limit. No affordability checks, no credit checks, just a credit card to do with what you wish.
The bank/lender knew there would be issues with this, meaning people would use the cards, and not pay the bill. But this was thought or expected to be a small percentage, 5% at max.
And it worked!
Those who received the cards used them and paid the bills.
Next, the bank gave away more and more cards, and it paid off, (no pun intended). Customers received the cards, used them, and paid the bills.
Credit cards were now on the menu of how to make purchases.
Of course it wasn’t as easy as just posting off credit cards to people, the bank had to get the shops, stores, and retailers onboard to accept the cards as well.
But the whole idea and concept worked, as today we use plastic more for purchases here in the UK then cash.
The Beauty of Credit
Credit is a beautiful thing when you think about it.
If you need to buy something and don’t have enough money to make the purchase, credit allows you to close the deal, and make the purchase. You just need to be able to afford the future payments.
Credit is a promise to pay in the future and over time.
And as we saw with the Fresno Drop, it didn’t take much for us as consumers to fall in love with credit cards.
No need to carry around large amounts of cash to buy stuff, you have a credit card with you at all times.
Need a way to track your spending without carrying around a ledger notebook and putting pen to paper, use a credit card. You can track your spending by the statements, and most credit cards offer mobile applications and online accounts, so you can track your spending immediately.
Some credit cards even offer rewards to use them, points, or other incentives you can save up and use for other purchases.
Then let us not forget the additional protection we have with credit cards. You make a purchase using a credit card and you have additional recourse if there is a problem with the product or service.
There are some credit cards that have 30 days interest free periods, pay off the balance within 30 days and you are not charged any interest. You are using someone else’s money now.
If you can get a credit card with zero (0%) percent interest or a low interest rate, it makes using the card more financially sound.
Also not to forget being able to shop and make purchases online. There is no way to put cash into a computer to pay for something online.
Credit can be when used properly, a good thing.
A Crystal Ball and The Future
If credit is the future tense of money, and a promise to pay in the future over time, when credit is taken out and/or used, we need to be able to predict that in the future we can repay this credit.
When we apply for a loan or any form of credit, lenders usually look at two factors, affordability and credit history.
Credit history is just that, a history, a past tense look at how we use credit and pay our bills.
Affordability is a present tense look at our income and expenses, and also an attempt at looking at the future, a crystal ball looking into our future finances to see if we can afford to and will repay a loan or extension of credit.
This glimpse into the future does not always show itself in a positive manner. Things can happen, illness, loss of a job, there are many things that can occur that may cause us to no longer be able to afford to repay a loan or credit.
Some of those things that can cause us to no longer be able to afford to repay a loan can be our own doing, such as over-extending ourselves credit wise.
Taking out and using too much credit.
However, used wisely, credit is something we relay on more and more, and who knows what the future of credit will be next.
What will be the next big “drop”?