To understand what a Credit Account is, let’s find out what “Credit” means. The definition of credit can be quite broad and have several applications.
For example, credit could refer to the credit history of a person or a business – their ability to settle loans and other obligations.
Credit could also refer to an agreement whereby a person purchases an item at an agreed-upon price and pays for it at a later date or through a series of scheduled payments.
The most popular way of buying via credit is through the use of a credit card whereby the credit card holder is allowed to make minimum payments every month. An option that is available with some retailers is the credit account.
Business establishments; usually retailers offer their customers a credit facility which allows them to purchase merchandise and pay for them at a later date.
The credit facility is the credit account; it has spending limits which the customer cannot exceed. Therefore, when the customer avails of the facility, the transaction is referred to as “buying on credit”. The customer will be charged interest whenever he uses the credit account.
You may have come across retailers where the facility is called by another term instead of a “credit account”. Among the notable variations may be charge account, customer charge account, and customer credit account.
Regardless of the terminology used, the general purpose of the type of credit account remains the same – to allow the customer to purchase merchandise now and pay for them at a future date.
Can Anyone Get A Credit Account?
While a credit account will afford businesses another source of revenue, to get one, you must pass the qualification process of the business establishment. After all, the retailer would want to make sure it will be paid for the purchases you made.
The amount of credit available on the credit account will be determined by the business establishment. In some cases, the amount of credit extended by the business establishment would depend on the customer’s credit score.
How Does Credit Account Work?
Once your application for a credit account has been approved, you can already purchase merchandise in the establishment.
The amount of the purchase will be deducted from your credit account. For example, if your credit account is worth $5,000 and you spent $500, the amount of the purchase will reduce your credit account to $4,500.
As mentioned earlier, every time you use the credit account, you will be charged interest the rate of which will be applied to the amount of the purchase. If you don’t use the credit account, you will not be charged interest on the amount of credit available.
If you are able can settle the amount in full, the amount of the credit account will return to its original balance. In our example, the amount of the credit account will be reset back to $5,000.
3 Benefits Of Having A Credit Account
Buying on credit is not a bad thing – assuming you can eventually settle the amount in time or in full.
There are a good number of benefits in having a credit account:
Manage Your Cash Flow
Let’s assume your client is delayed in paying your invoice but you received an assurance that you will be paid in full in 5 business days. If your cash flow is tight, using the credit account will allow you to buy necessities while waiting to receive payment from your client.
Make Purchases During Emergencies
“To err is human” as the saying goes. It has happened to all of us – forgetting our wallet and we’re already at the supermarket. A credit account will allow you to purchase groceries without having to go back home.
Improve Your Credit Score
If you are prompt in paying for your credit purchases, it will be reflected on your credit score. Retailers that offer credit account options for customers will submit the transactions on the facility to the biggest credit agencies.
Lastly, the interest rate charged on credit accounts is generally lower than the rates applied to credit card transactions.
Should you apply for a credit account?
A credit account is a good option to have at your disposal. You never know when situations arise that may impede your ability to make important purchases. The credit account is a contingency measure that will allow you to manage these situations at little cost.