Credit & Credit Cards

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Why credit matters

Your credit history follows you into many of the biggest financial decisions you will make. Lenders use it to decide whether to approve you for a credit card, car loan or mortgage and what interest rate to charge. Landlords may review it before renting to you, and in many states insurers use credit-based insurance scores when setting premiums. A strong credit profile can save you thousands of dollars over a lifetime simply through lower interest rates.

This hub covers how credit scores are calculated, how to read your credit reports, how to build credit from scratch and how to choose and use credit cards — including rewards and balance transfers.

Credit reports vs. credit scores

These two terms are often used interchangeably, but they are different things:

Because your score is calculated from your report, fixing errors in your report is one of the fastest ways to protect your score. Learn how in our guide to reading a credit report.

What drives your credit score

FICO publishes the general weighting of the categories in its scores: payment history (about 35%), amounts owed (about 30%), length of credit history (about 15%), new credit (about 10%) and credit mix (about 10%). The two biggest levers are therefore paying every bill on time and keeping credit card balances low relative to your limits. Our guide on how credit scores work explains each factor, and how to improve your credit score turns them into an action plan.

Using credit cards wisely

Credit cards are powerful tools when you pay the full statement balance every month: you get purchase protection, a grace period on interest and often rewards. They become expensive when you carry a balance, because card APRs are typically much higher than other forms of credit. Before choosing a card, read how credit card interest works and learn how credit card rewards actually add up. If you already carry balances, a balance transfer may help — or run your numbers through the credit card payoff calculator.

Your rights as a credit consumer

Federal law gives you important protections. Under the Fair Credit Reporting Act you can dispute inaccurate information on your credit reports, and the bureaus must generally investigate within 30 days. The Credit CARD Act of 2009 requires card issuers to give advance notice of many rate increases and to show on each statement how long it would take to pay the balance with minimum payments. The Equal Credit Opportunity Act prohibits lenders from discriminating based on race, religion, national origin, sex, marital status, age and other protected characteristics. The Consumer Financial Protection Bureau explains these rights in detail.

This hub is part of our complete personal finance guide. Read our editorial standards.