Credit is borrowed money you can use to make large purchases (i.e – homes, cars, etc.) or investments when you don’t have the money to spend up front.

You can obtain credit through a bank or lender, whom you agree to pay back at an agreed-upon time and date. How much money you can borrow depends largely on your credit score and borrowing history.

There are several reasons why establishing credit is an important and necessary task, however, here are our top 3 reasons why you should consider getting your credit into shape:

• Increases the likelihood of being approved for loans to assist with large purchases like homes and cars
• Improve your chances of renting during the landlord selection process

Your credit score is a three-digit number that relates to how likely you are to repay debt. You can also think of it as a grade for how responsibly you’ve managed loans, lines of credit and other financial obligations over the years.

Credit scores are extremely important because they affect your ability to borrow money as well as the cost of doing so. 

Credit lenders (like banks and other financial institutions) review your credit score to determine financial risk. Meaning — if they lend you money, offer you credit or give you goods and services in advance, will you pay them back?

Your financial risk can be an assessment of:

• Your current your income
• The amount of time you’ve been employed by the same employer
• The amount of time you’ve spent at your current permanent address
• What kinds of assets you have

Credit scores can typically range anywhere from 300 – 850. The higher your credit score, the better and the more likely you are to receive credit benefits. Due to the high economic fluctuation within the U.S., the average credit score varies greatly among different demographics, ages, and income levels.

There are several ways in which you can begin to establish your credit history. Here is a short list of the most commonly used methods: 

• Open your first credit card: If your credit history is limited, look for a credit card with a low spending limit (which may be easier for you to qualify for). Make small purchases on your credit card (i.e – gas, groceries or a small bill) that you can pay off easily and on time. Be careful of high interest rates. Pay your full balance every month and you’ll see your credit score begin to rise.
• Get a secured credit card: If you have limited credit history or any negative impact on your credit score, you may want to try a secure credit card to begin building your credit. Secured credit cards are usually tied to a savings account, and the limit on the card is the amount in the account or a percentage of it. Similarly to a credit card, you build credit with a secured card by making responsible charges, keeping your balance low or at zero, and paying on time every month. 
• Open a joint credit account or become an authorized user: If you’ve having trouble qualifying for a credit card on your own, you may want to consider opening a joint account with someone who has good credit, or becoming an authorized user on someone else’s credit account. For joint accounts, you are responsible for repaying charges on the card, and so is the other account holder. If you don’t repay money borrowed on a joint account, the joint cardholder will have to, or vice versa. If you decide to go this route, make sure the person is someone you trust or you can run the risk of harming your credit score more than you will improve it.
• Get an auto-loan: Car loans are among the easiest to obtain and qualify for (though interest rates and terms can vary greatly depending on your lender). If you have trouble finding an auto-loan on your own, another option is to find someone who will co-sign for you. Auto loans are reported to credit bureaus and will improve your credit score if paid on time. 

Remember, credit is not “free money.” Whatever you borrow must be paid back in full and on time to avoid negative impact to your credit score.