Credit is the ability to borrow money or access goods or services with the understanding that you'll pay later. Credit history impacts your ability to obtain credit cards, home and auto loans, other credit services, and interest rates/fees related to these services.
How To Establish Credit
One way to build credit is to become an authorized user on an established line of credit, like a parent's credit card. Make sure your parent has a good credit history before choosing this option. Alternatively, there are many credit cards that you can apply for on your own. If it's your first card, look for low annual or incidental fees and low annual percentage rates.
Secured Credit Cards
Secured credit cards are a great tool to start building your credit. Backed by a cash deposit, they are easy to qualify for, allow you to set a low credit limit, and encourage you to make payments on time.
What is a credit report?
Credit reports contain information about the types of credit you hold, repayment history, and the age of your accounts. Your credit report serves as your financial references, which lenders use to determine your eligibility for their services. You can view your credit report for free at annualcreditreport.com.
What makes up your credit score?
A credit score is an algorithm that measures credit risk based on the information in your credit report–think of this as your GPA. Credit scores can be affected by requests for new lines of credit, payment history, how much of your limit you use, and the types of credit you have.
Credit Tips
- Keep track of how much you spend–remember that impulse and incidental purchases add up fast
- Always pay your full balance on time
- Know your interest rates on loans and credit cards
- Stay consistent with your payments to maintain good credit