If you have taken out a loan or used a credit card, you were given credit. Credit is the act of using someone else’s money to pay for things. You promise to repay the loan to the person or company that loaned you the money. Your loan or credit card payment includes the principal (the money borrowed) and interest (money paid for the privilege of borrowing the money).

If you make payments on time and repay all your debts, you probably have good credit. It is important to have good credit when you are trying to get a loan for a major purchase, such as a home.

Lenders gather information about your credit in order to make a decision about lending you money. Click here to read about the 4 C’s of credit and why they are important to lenders.