Put simply, credit is the reputation for repaying debts on time. The better your credit, the more willing companies and people will be to lend you money, issue you a credit card, let a house or flat to you, hire you, or provide services to you on favourable terms.

Good credit doesn’t require a spotless payment history, but poor credit, once established, can be difficult to escape. When you apply for a credit card, personal loan, or any other type of

credit, the lender must decide if you are a good credit risk. Creditors do this by checking your background to see how you’ve paid debts in the past. A poor repayment history will hurt your ability to receive credit.

To determine if you are a good credit risk, most lenders use requirements and scoring systems. You will need to pass the requirements for factors such as type of occupation, length of employment, and annual income. Applicants may also receive scores for the number of previous or current creditors who have rated their credit payment history highly.

If you are deep in debt and are applying for more credit, a creditor may consider you to be over-extended and deny your application, believing you may not be able to handle additional payments based on your income and existing obligations.