What is a credit score?
A credit score is a three-digit number that represents how reliably you’ve paid back borrowed money in the past. Lenders use it to determine whether to loan you money and what interest rate to charge. Generally, a credit score below 600 is considered poor, while a score of 800 or higher is exceptional. On a car loan, the difference between a credit score of 620 and one of 760 can easily add up to $5,000 in interest payments.

What goes into your score?
Five factors determine your FICO score, weighted differently:

• Payment history (35%)
• Amounts owed and credit utilization (30%)
• Credit history (15%)
• Credit mix (10%)
• New credit inquiries (10%)

Why is it bad to have no credit?
Lenders don’t know anything about you, so they’re reluctant to extend credit…which means lenders don’t know anything about you. It’s a frustrating loop.

How do I build credit?
Become an authorized user on a parent’s credit card (if they have good credit), open a secured credit card (which requires a refundable security deposit), or take out a credit-builder loan (where the money is released after you’ve paid off the loan).

What should I avoid?
Carrying a balance to build credit. This is a widespread — and expensive — myth.

Opening a store credit card as your first card. Retail cards are easy to get but typically carry extremely high interest rates.

Missing a payment. A single payment that’s 30 days late stays on your credit report for up to seven years.

How do I check my credit?
You’re entitled to one free credit report every year from each of the three major credit bureaus — Experian, TransUnion and Equifax — through AnnualCreditReport.com. Download your reports and check for errors. Mistakes happen, but you have the ability to dispute any wrong information.

Understanding the complexities of credit can feel overwhelming, but it doesn’t have to be. Start with a secured card, treat it like a tool rather than free money and let the months stack up.

That’s the whole game.