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: boshea@nerdwallet.com. Twitter: @BeverlyOShea.
The article How to build credit in (exactly) 250 words originally appeared on NerdWallet.
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