How to Establish, Use, and Protect Your Credit

Why Credit Is So Important

Good credit holds real value. It gives you access to funding for things like a home, a car, or a college education—without needing years of savings. Because of this, credit is a powerful financial tool.

However, when misused, it can lead to overwhelming debt. That’s why learning how to use credit wisely is one of the most essential financial skills you can develop.

What Lenders Want to Know

Before lenders offer you credit, they want assurance that you’ll repay the funds. In other words, they assess your creditworthiness. To do so, they examine several factors.

Income and Expenses

Lenders review your income and regular expenses—rent, utilities, food, and more. What’s left over each month shows them whether you can manage additional debt.

Assets

They also look at your financial safety net. Savings accounts, valuable possessions, and insurance policies can serve as collateral and improve your credit application.

Credit History

Your borrowing behavior matters too. Lenders want to know:

How much debt you already carry
How many accounts you have
Whether you make payments on time

Most of this data comes from your credit report. This document summarizes your repayment habits and overall credit behavior.

Building Credit from Scratch

Many people face the challenge of having no credit history. This includes young adults, homemakers, or those who rely on cash. Fortunately, there are clear steps you can take to start building credit.

Open Bank Accounts

Begin by opening a savings and checking account in your name. Over time, consistent deposits and responsible withdrawals show that you can manage your money well.

Apply for Secured Loans or Use a Cosigner

Consider a small loan backed by your savings or belongings. Alternatively, a trusted friend or relative with good credit can cosign a loan with you. Since both of you share responsibility, lenders may be more willing to approve it.

Use Entry-Level Credit Cards

Gas and store credit cards are easier to qualify for than major ones. These can be great starting points. Before applying, review the terms carefully. For example:

Does the card have a grace period before charging interest?
Are there annual fees?
How are finance charges calculated?

Build Slowly and Strategically

It’s best to move slowly as you build credit. Avoid applying for multiple cards at once. Instead, focus on managing a few accounts responsibly. Always pay your bills on time. Keep your balances low. Most importantly, treat credit as real money—it must be repaid with interest.

Safeguarding Your Credit

Once you’ve established credit, protecting it becomes the next priority.

Be Smart with Cards and PINs

Only carry the credit or debit cards you plan to use. Keep the rest in a safe location. Maintain a list of your account numbers and customer service contacts in case your cards are lost or stolen.

If you report a stolen card before it’s used, you’re not responsible for any charges. However, if it’s used before your report, you’re only liable for up to $50 per card.

Guard Your Information

Be cautious about sharing your account details—especially over the phone. Only give out personal or financial information when you initiate the call.

Monitor Your Spending and Statements

Save your receipts and compare them to your billing statements each month. If you throw out documents with account numbers, make sure they’re unreadable.

Handle Disputes Quickly

If you see an error on your bill, contact the creditor in writing within 60 days. Your letter should include:

Your full name
Account number
The item you’re disputing
A brief explanation of the issue

Responding promptly helps resolve disputes faster.

Why Credit Applications Get Denied

Even if you follow all the right steps, you may still be denied credit. Here are some common reasons:

Short employment history or brief time at your current address
High existing debt
Vague or unreasonable purpose for the credit request
Cosigner already holds too much financial liability
Errors on your credit report
Strict lending policies

That said, lenders must follow the law when making credit decisions. They cannot deny you credit based on race, religion, gender, marital status, age, national origin, or income from public assistance. Approval must always depend on your ability and willingness to repay.