What is credit?

Credit is borrowed money you can use to purchase goods and services when you need them. You get credit from a credit grantor, whom you agree to pay back the amount you spent, plus applicable finance charges, at an agreed-upon time.

What is the importance of good credit?

Good credit is necessary if you plan to use credit to make a major purchase, such as a car or a home, or want to be able to take advantage of the convenience credit can provide. The importance of good credit also extends beyond purchases, in that your credit information may be used by potential employers and landlords as part of the selection process.

Benefits of having good credit

Having good credit can entitle you to a number of benefits from credit card companies and other financial institutions:
  • Lower interest rates on major purchases like a car or house.
  • Higher limits on your credit cards, which will help when you need to make big purchases.
  • Cash back, travel points and other rewards linked to good credit.
  • Quicker approval for renting an apartment. Landlords often refer to your credit report to determine if they will rent to you.
  • Better insurance rates. Many insurance companies see a bad credit-based score as a sign you’re more likely to file a claim, so good credit often means lower rates.
  • More purchasing power. You can often negotiate the deal you want just by referencing your good credit score.

Get a free copy of your credit score

Federal law allows every consumer to order a free credit report annually from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. You can order the report online, by phone or mail.