Many of you may already know what credit means but it is important to understand the different aspects of credit and how it can greatly affect your future. Credit is more than just having a credit card and making payments so let’s back track a little and begin with what the term credit actually is.

Credit Defined

Credit is essentially borrowed money. You, the borrower, enter a contract with a lender (e.g. bank or credit union) in which you can use their money to buy something now and repay the funds at a designated later date.

Establishing Credit

Establishing credit for the first time can prove difficult if you have no prior credit history; some lenders are reluctant to issue credit to someone they don’t know if they can trust or not.

Do your research - where and how can you establish credit?

Your Financial Instition

Start with the financial institution that you bank with, because you have established a relationship with them.

  • Credit Cards - If you are under 21, you will need a cosigner or to prove that you have the means to handle payments (i.e., a job)
  • Secured Credit Cards - Requires you to put down a security deposit which is used as collateral if you can’t make a payment and is usually equal to your credit limit.
  • Other Loans - student loans, car loans, mortgages or personal loans can also help you establish credit, but you shouldn’t just go out and buy a new condo to establish credit.


  • By having your name associated with services like cellular phone contracts, where you pay after you have used the service, and making payments on time, you can establish credit.

Good Credit Tip: Once you have obtained a credit card (e.g. Visa or MasterCard):

  • keep your balances low
  • pay on time
  • not pursue unnecessary credit
  • stick with a few credit instruments in order to establish good credit.

Remember that using a credit card is one of the easiest way to establish good credit, but it’s also one of the fastest way to fall into debt.

Uses for Credit

Credit is used to obtain goods or services before paying for them, like: buying a car, taking out a mortgage, getting a lease on an apartment, etc. Recently, credit is being used in some states (not Illinois) as part of a background check for employment.

Credit History

Your credit history is a record of your ability to repay borrowed amounts per the terms of your credit agreements. This record of your credit history is documented in a credit report. Many credit reports include items like credit card balances and payment history, car loan payment history, mortgage information as well as previous addresses and open revolving credit accounts (like credit or department store cards).

Get a free copy of your credit report, which includes a listing of your credit history by visiting

If you find discrepancies on your credit report, you can petition them by following these steps, found in more detail on the Federal Trade Commision’s website.

Credit Scores and Why They Matter

Credit scores are a numerical value placed on your creditworthiness.

What is typically included in a credit score?

  • Payment History
    Do you pay your bills on time?
  • Debt to Available Credit Ratio
    Do you pay down as much as you can each month? Do you max out your credit cards?
  • Length of Credit History
    How long have you been paying your bills on time?
  • Varied Credit Portfolio
    Do you have more than one type of credit (revolving and installment)?
  • New Credit Inquiries
    Do you apply for credit cards or loans frequently? See the Hard Credit Pull Vs. Soft Credit Pull Infographic for more info.

What is NOT included in the credit score?

  • Age
  • Race
  • Sex
  • Job or Length of Employment
  • Income (but this can have an impact on whether a creditor will lend you money)
  • Education
  • Marital status
  • Whether you’ve been turned down for credit
  • Length of time at your current address
  • Whether you own a home or rent
  • Information not contained in your credit report (e.g., your favorite color)