Q&A: What exactly is good credit?

Question by Nela: What exactly is good credit?
I’m 18 years old and planing on moving out of my parents house. I have been working for 3 years and saved up almost enough to buy a house, but someone told me its not such a good idea to pay with cash that i should start off with credit, or my credit will never build up. The thing is I have no idea what people mean when they say “good credit”, what exactly is it? How do I get started? Can someone please break it down to where i know what I’m getting my self into.

Best answer:

Answer by sashazur
“Good credit” basically means that you have shown that you can be relied on to pay your debts.

The real world isn’t purely cash-based, and therefore, you will the ability to sometimes take on debt – such as buy things with a credit card, or get a home mortgage, etc.

The better your credit is, the easier it will be for you to get credit, and the cheaper your loans will be.

(It seems weird to say that money can be cheaper or more expensive, but it makes sense when you realize that you have to pay extra to get a loan – if someone loans you $ 1000, they eventually will want more than $ 1000 back; the extra amount is called “interest” and covers their overhead in lending to you).

So… to start getting good credit, you need to get someone to loan you money, and then you need to pay it back.

Some easy ways to start would be with a credit card (maybe a secured card initially – where you pay some $ $ $ up front), or with a charge account at a department store.

From there you can work your way up to things like car loans, mortgages, etc.

Once a year you are entitled to a free credit report that lists your credit score and your credit accounts, to get it go to www.annualcreditreport.com (there are other places that say they are free, but this is the only one that’s really free – the others will try to make you sign up for stuff).

Good luck!

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