What Is Credit?
Credit involves a promise to pay in the future for purchases made today. It comes in the form of either a loan or line of credit. A loan typically offers a set term or payment period, a fixed or variable interest rate and set monthly payments. A loan is generally used when credit is extended for a car or home. The full amount is extended at the time the loan is closed.
Even though your payment history has the largest impact on your credit score, other factors can combine to drive your score down, even if you make your payments on time. For example, maintaining high balances that consume most of your available credit and relying heavily on unsecured debt (credit cards) can combine to overwhelm your on-time payment history and cause your score to decline over time.