Credit is access to money that you have not earned. This is similar to a loan because you are borrowing money (whether from a bank, creditor, or lender) that will need to be paid back with interest. Your access to credit is determined by the following:
- How you pay back borrowed money (debt) determines your creditworthiness (likelihood of repaying debt)
- Information on how you pay back your debt is reported to private agencies
- This information is used to create a credit history and credit report
- Banks and their lenders will using information on your credit report to determine whether or not they want to lend to you
Due to the important of a credit report, maintaining a good credit history is important to you and your future. A good credit history will determine how much you can borrow, what type of interest you will be offered (such as on home loans and car loans), whether a landlord will rent to you, whether an employer will hire you,, and even how high your car insurance will be.