Credit, especially having good credit, is extremely important because it will affect almost every major buying decision you will make in your lifetime. Good credit helps you get better interest rates on credit cards, car loans and even a home mortgage. It can also help you when you want to apply to rent an apartment or get a new job.

However, what are the steps to getting good credit?

Getting good credit – To improve your credit score, you must have credit. You can earn good credit ratings when you borrow money and pay it back on time and for the full amount. Let’s say that you have a credit card from a retail store that you only use when you shop at that store. When the statement arrives each month after you’ve made purchases from that store, you pay off the amount owed on time and in full. The company that issued your card will then report back to the credit bureaus that you have paid on time. The more good reports the credit bureaus receive, the higher your credit score.

Benefits of good credit – When you have a good credit score, you’ll be able to borrow more money at lower interest rates. Why? Because the banks are already aware that you are a responsible person based on your credit history. Some potential employers also look at your credit reports as a means of judging a person’s responsibility. Therefore, good credit can even help you get a job.

On the other hand, bad credit doesn’t help you in any way. While good credit will help you qualify for a loan, bad credit means that you’ll be turned down and it will harm your ability to rent a house or an apartment.

Getting bad credit – It’s easy to get a bad credit score. It happens when you don’t pay back the debts that you’ve borrowed on time or when you simply don’t pay it back at all. There are varying degrees of bad credit. It takes more than just missing a single payment or two. If you continually pay late or don’t make payments on your debts for several months, your credit score will be affected and will continue to hurt you in the future.

Fix your bad credit – Credit scores, even low ones, can be improved and fix. By changing your behavior so that you start using credit responsibly and making payments on time, you can turn your bad credit into good credit over time. The first step is to obtain your credit report.

Understanding good credit vs bad credit helps you learn what the steps are that you need to take in order to improve your credit score.

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