What is Credit and why is it important?

Credit refers to your ability to borrow money to purchase goods and services. Financial institutions that grant credit, such as banks and credit card companies, use your past spending and payment history (detailed in your credit report) to determine your credit-worthiness as well as how much future credit to extend to you.

credit REPorts & credit scores

The information in your credit report is often condensed into a single number – a FICO or credit score – that is used as a general measure of your reputation to pay back your loans and fulfill your promises. Because so much of the economy runs on credit, having a good credit history and FICO score is critical for getting approved for credit cards, mortgages, auto loans, cell phone service, or even getting your utility service turned on.

Since credit is so vital to lots of things in life, it’s important to keep track of your credit report to make sure it’s accurate and up to date. Experts recommend monitoring your credit report every year, before making any major purchases or life changes, or if you think your information has been compromised through a security breach. Here’s how to access your credit report. If you find any errors, you can dispute them and get them fixed by following these steps.

If you don’t have a credit history or have a poor credit history – check out these tips for establishing or re-establishing your credit. This article explains how you can improve your credit score.

The video below is a nice summary of the purpose of credit reports and credit scores:

Components of a credit score

Additional resources

Best practices to building credit (MIT Student Financial Services)
8 Steps to Building Good Credit Now
4 Fiscal Fixes For Your Credit Score
Five Credit Card Tips for Building or Rebuilding Credit
Get Started on the Road to Good Credit
The Dos and Don’ts of Rebuilding Credit