7 Things You Need to Know About Credit, Credit History, and Credit Scores

Chances are you’ve heard the terms “credit score,” “good credit,” and “bad credit” thrown around here and there. But, while they all may be very familiar phrases, they can also be very confusing ones. After all, you don’t actually encounter your credit score on a daily basis, and your “good” or “bad” credit isn’t presented to you on a graded paper like a math test. They exist somewhere in the virtual world and may not come into play in your daily life. But credit — the root of it all — is actually a pretty important thing, particularly as you make increasingly more independent purchases in your life. It’s a good idea to get a handle on what it is and how it affects you (now and in the future), which is we sought out some expert help to break it down.

What is credit and what is it used for?

Credit is essentially borrowed money that you can use to buy everything from groceries, to a car, to a new home, and the agreement that you’ll pay the lender back at a later date, usually with an added fee. In short, it’s “how you make purchases in life when you don’t have the cash to buy something outright,” Shannah Compton Game, a certified financial planner (CFP) and host of the podcast Millennial Money tells Teen Vogue. “You’re leveraging someone else’s money, i.e. the bank or credit card company, to make purchases.”
And you’ll need to build a credit history, or a track record of borrowing and paying back credit, to make increasingly larger purchases. “It’s so important to build credit [history] because credit will help you buy stuff in life — whether you want to buy a car, rent an apartment, buy a house, or score that cool rewards credit card, you’re going to need credit [history] to do so.

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