Credit does not refer only to a credit card. The term credit is used to describe an individual's financial dependability. How trusting a creditor is toward you depends on your credit worthiness. Your worthiness for access to any creditor's money or goods is based on your history of employment, timely payments on debt, and salary. If you are considered a trusted candidate for credit, you will be able to borrow money more easily and at a lower rate than someone with a bad credit history. Those without a good credit score can find it difficult to access funds, whether they be for a car loan, mortgage, housing, or even employment.

Your trustworthiness for credit is assessed by creditors using a credit score. Your credit score is kept on your credit report and is a number that is calculated using many factors contained on your credit history.Young people just starting out typically have no credit score. This is why it is so important for a young person to understand credit before accessing it. The decisions and choices they make about credit can affect them for the rest of their lives. Those already affected by a poor credit history can access free credit repair information and services online.

How to Establish Good Credit

Young people often have difficulty accessing credit, as creditors find it difficult to assess their financial dependability. Credit scores are based on factors such as annual income, bill payment history, and outstanding debt - often variables that young people have not yet encountered. There are a few ways to begin building good credit, including applying for a secured credit card, which requires you to pay the money planned to be borrowed up front. Other methods include having a co-signer, who agrees to pay debts on behalf of the other person if that person does not pay. As well, applying for a credit card at many local stores is often easier than applying for major credit cards such as Visa or Mastercard. Once a pattern of timely payments is established, major banks and lending institutions will be more willing to issue you credit.

Other factors also affect your credit score. Young people need to always pay rent and utility bills on time, as these reflect positively on a credit report. Critical to establishing good credit is understanding some important concepts about credit. Some of these are outlined below.

Credit cards - Charge Cards - Debit Cards

These are three different things.

A credit card allows you to make purchases and pay for them over time. Understand that credit cards are literally loans - they must be paid back, and if not paid back within a certain time period, will incur interest costs. These interest costs are typically very high. Charge cards are different than credit cards, as they cannot be paid back over time. Once a bill is received from purchases made on a charge card, the sum must be paid back in full immediately.

Debit cards simply allow a person to make purchases with the money that is already in their bank accounts.

Concepts important in understanding credit cards and many other types of credit include: Annual percentage rate (APR) - We've all heard this term when viewing TV adds for cars and other types of merchandise. APR refers to the yearly interest rate, and is used as a measure of the cost of credit. Typically, a lower APR is better, but don't be fooled by a low APR with a short time limit. If the time limit is very restricted, often your APR skyrockets after than initial period., expressed as a yearly interest rate. Usually, the lower the APR, the better for you. Be sure to check the fine print to see if your offer has a time limit. Your APR could be much higher after the initial limited offer.

Annual Fee - Some credit cards incur annual fees, typically between $10-$100.

Grace Period - Credit cards enable you to make purchases without having to pay any interest for a particular length of time, typically 30 days. This is called the grace period.

Transaction Fees - It often costs money to perform certain transactions. With credit cards, examples include a fee charged for cash advances, or fees charged when spending over the designated credit limit.

Customer Service - This refers to the type and times of contact you may have with the creditor. Important issues to consider include whether the creditor provides you with a toll free contact number and if the creditor available 7 days a week, 24 hours a day.

Before making a decision to take out credit, talk to someone close to you about your decision. This person could be a family member, a banker, or any person who is knowledgeable about the risks and benefits of obtaining credit. Understanding the difference between bad and good credit, how a credit score is calculated, and how you manage credit reflects on a credit report is critical to forming a solid understanding of credit and debt. Those individuals who have fallen behind in payments and are currently doing damage to their credit reports are advised to submit a free online credit evaluation or speak to a professional with a reputable credit repair services company today.