For most young adults, credit is an abstract concept. How exactly can a number help the electric company decide if I need to pay a deposit? How can a single report help banks, car dealerships, and credit card companies decide whether they’re going to loan me money?
Put simply, your credit report is an overview of your debt accounts (or lack thereof) and how you’ve paid them. According to Credit Karma, a credit report focuses on five areas. From most to least important, these factors are
- Payment history – Have you paid on time?
- Credit usage – How much of your available credit are you using?
- Length of credit history – How long have you had credit?
- Credit mix and types – Do you have a variety of accounts?
- Recent credit – How many hard inquiries have you had recently?
Your credit score is a numerical assessment of these factors. Scores range from 300 to 850. Different lenders evaluated scores in different ways, but here are the general guidelines:
| Poor | 300 – mid 600s |
| Fair to Good | Mid 600s – mid 700s |
| Very Good to Excellent | Mid 700s – 850 |
Credit Resources
How to Build Good Credit: A Beginner’s Guide
A Beginner’s Guide to Improving Your Credit Score