Building Good Credit
What It Is, Why It Matters, and How to Build It
What is good credit?
Imagine you ask someone to lend you $1,000. What would they want to know before saying yes? They’d probably ask: “Can I trust you to pay it back?” That’s exactly what good credit is, a number that reflects how trustworthy you are with borrowed money.
A credit score is a number lenders use to quantify that trustworthiness. The most common credit score is the FICO score, which ranges from 300-850, with higher scores indicating a more reliable borrower. Below is how the score is calculated.
Fico Score
Why is a good credit score important?
With a strong credit score, you’re more likely to qualify for lower interest rates on loans and credit cards, get approved for apartments or car leases more easily, and save thousands of dollars over time simply by borrowing smarter. For example, if two people take out the same $10,000 loan, one with great credit might pay 4% interest, while the other with poor credit pays 18%, a difference of over $1,500 in just one year. Some loans outright require certain credit scores.
How can I build good credit?
Start a Credit Account
Legal adults (18+) can apply for a secured card through a reputable bank or credit union. You’ll need to make a refundable deposit , which becomes your credit limit.
Pay on time
Set up autopay or calendar reminders to make at least the minimum payment by the due date every month. Payment history is the most important factor in your credit score (35%).
Limit your spending on credit
Try to keep your balance, the outstanding amount you owe to the bank, under 30% of your limit. This affects the second most important factor of your credit score, "credit utilization."​