Description of Credit

It's typical for a lender or creditor to review an applicant's credit history before issuing an approval. For this reason, building credit and keeping a satisfactory credit history helps if you want to purchase a house or vehicle. Prior to forwarding your application for credit, it's important to understand how credit works and factors that influence credit.

Credit Defined

Credit is the ability to acquire items such as a mortgage, car or electronics with borrowed funds from a bank or other financial institution. With credit, you can purchase a car without actually having the cash. You sign a credit application or loan application, and then agree to pay back the bank that issued the funds. Types of credit can include a credit card, mortgage, auto loan and student loan.

Credit Scores

Getting first-time credit can prove challenging because many creditors and lenders only work with applicants who have a history of maintaining credit and a good credit score. Credit scores refer to numbers that range between 300 and 850. An applicant's score provides clues regarding their credit habits. For example, a low-end score can point to problems such as lateness, wheres a high-end score usually indicates excellent credit habits. Applying for a secured credit card or student credit account can help first-timers establish credit, as does asking someone to cosign a credit or loan application.

Good Credit History

Factors that hurt credit history include habitually paying loans, credit cards and other forms of credit late. If a creditor or lender extends a line of credit, repaying the loan on time each month is key to growing and maintaining a prime applicant status. The more payments you miss, the lower your FICO credit score and ability to acquire new credit. You can also keep up a good credit history by paying down debts and sparingly applying for new accounts.

Credit Reports and Credit

Lenders and creditors needing information on your credit history can acquire this information by requesting a copy of your credit report. Credit reports disclose everything about your past -- past creditors, balances, timeliness of payments and previous credit problems, like charge-offs, bankruptcy, foreclosure and repossession. Negative information stays on your report for seven to 10 years. While you can't eliminate negative information early, you can take steps to ensure that your report is up-to-date and accurate. AnnualCreditReport.com arranges for each consumer to review their credit history annually for free. You can get a copy of your report and then contact creditors to remove mistakes.