The Importance of Credit

Your credit is more than just the plastic card sitting in your wallet. While credit cards can play a role in establishing your financial record, credit by itself is better defined as a bank's trust in you to repay a loan.

Having a line of credit means a bank believes you will give back the money you are borrowing to make a purchase. Lenders, in return, are paid interest as a percentage of your loan.

Creating a trustworthy record of on-time payments can help you get lower interest rates when you finance a house, a car, a college education or smaller purchases such as new appliances.

You should also consider tracking your "debt-to-income ratio," which tells you what percentage of your total monthly income is going to debt. You can start with Regions' online calculators.

A good credit standing can have benefits far beyond your bank. Getting an apartment, signing up for utilities and even landing a job can all be affected by your credit history. Landlords, the electric company and your potential employer may use your credit to figure out if you will be a responsible tenant, customer or employee.

If you develop "bad credit" by making late payments or missing them altogether, banks and other lenders may see you as a higher risk. To protect their investment, they might charge you higher interest or not lend to you at all.

Making the most of your credit begins with understanding your credit. The sooner you can rein in spending and keep careful control of your debt, the sooner you’ll set out on the road to long-term financial freedom.