What credit is: Your credit reports are records of how you have repaid debt in the past. Credit scores are three-digit numbers that estimate how likely you are to repay a lender or card issuer as agreed in the future. A “credit check” may look at either or both.
Why it matters: Good credit gives you a better shot at borrowing money at a favorable interest rate. It can also mean lower car insurance bills and lower or no utility deposits.
How to begin: Start using credit, which is easier said than done. See if you can get a credit card, perhaps a secured credit card to start. Becoming an authorized user on someone else’s card may help. Student loans, car loans and credit-builder loans also build credit history.
Do I have to go into debt? No. One of the best ways to build credit is using a credit card lightly and paying the balance in full every month.
Understand your score: Most credit scores are on a scale from 300 to 850. It’s smart to monitor your score; you can get a free credit score from some credit card issuers or personal finance websites, like NerdWallet.
Know what affects your score: The biggest things you can do to boost your credit are:
- Pay bills on time, without exception
- Use little of your credit limit (under 30%, and under 10% is better)
Other things help, too:
- Have both credit cards and loans
- Keep older accounts open
- Limit applications for credit
Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @BeverlyOShea.