A credit score is a three-digit number that summarizes your creditworthiness, while a credit report is a detailed record of your credit history. Your credit report includes information about your accounts, payment history, credit utilization, and any public records like bankruptcies. This report is used to calculate your credit score, which helps lenders, landlords, and sometimes employers assess your financial reliability. Together, they provide a picture of how you handle credit and debt.

Using a credit card responsibly means paying off your balance each month, keeping your spending within budget, and avoiding interest by paying in full. Keep your balance under 30% of your credit limit to protect your credit score, and consider setting up autopay to prevent late payments. These habits will help you avoid debt while building a positive credit history.

A high credit score can help you qualify for lower interest rates on loans, get approved for credit cards with better rewards, and even save on insurance premiums. While scores in the mid-700s can offer excellent benefits, financial experts agree that obsessing over a perfect 800+ isn’t necessary. As long as you maintain a “good” score, you’ll likely have access to favorable terms and rates.

Good debt is generally considered debt that helps build your future, like student loans, mortgages, or business loans, as these are investments that can increase in value or improve income potential. Bad debt usually includes high-interest debt used for consumable items or non-essential purchases, like credit card balances carried month-to-month. The key is whether the debt creates value or financial strain over time.

Debt affects your credit score in two main ways: how much of your available credit you’re using and whether you pay on time. High balances and missed payments can hurt your score, while paying on time and keeping balances low can help it. Reducing your debt over time also boosts your score by showing that you’re using less of your available credit.