If you’re a younger person just coming into your own financially, or just someone who hasn’t needed to borrow much money, credit scores may seem like a mystery. However, there’s a lot you need to know about credit scores if you ever plan to take out any loans or spend on credit.

What Your Credit Score Means

Your credit score is a rough estimate of how trustworthy creditors think you are. Three credit reporting companies take down information about your ability to pay back loans you take out. Then, you’re assigned a numerical score based on how likely you are to pay back the money you borrow.

So, your credit score indicates your general trustworthiness. It’s a shorthand for companies to use when considering lending you money. The better your score, the less of a risk you are to lend money to. The lower the score, the less likely you are to be approved for loans.

Paying things in full, paying on time and not missing payments are the main drivers to having a good credit score. And you definitely want a good score.

Why Do You Want a Good Score?

A good credit score opens a lot of doors for you. For one thing, having a good score makes it much more likely that you’ll get approved for loans you want. Let’s say you want a personal loan to help purchase a new appliance. You’ll need a good credit score for approval on that!

What’s more, your credit score directly impacts things like your interest rates and minimum payments. If you have a poor credit score, you likely won’t be approved for loans with decent interest rates. The loans you do get approved for will often need to be paid back over very short terms, giving you very high minimum payments.

How Can You Build a Good Score?

If you don’t have a good score, it can seem daunting to try to pull it up. However, there are a few ways you can start repairing damaged credit or building new credit. First, make sure you’ve got your finances back in the right way. You need to be able to pay for your bills without struggling to also buy food and other necessities.

Second, take out some small loans. Get a small personal loan that you know you can pay back over time. Often, it’s best to make multiple small payments over a longer period of time to build a credit score. Likewise, you could take out a low-limit credit card and just use it to pay for gas and groceries. Then, turn around and pay it off every month before it gains interest!