Credit, in the simplest terms, is your reputation for paying debts on time. Your good credit indicates to lenders that you are likely to repay your debts and may merit better credit terms and services. It also tells potential employers and landlords that you are a financially responsible and trusthworthy individual.

Bad credit, on the other hand, throws up a red flag to other companies, possibly labeling you as high-risk, uncreditworthy, or financially irresponsible. You may still be able to obtain credit, but the interest rates will likely be very high and the terms very strict.

While your credit history doesn't have to be perfectly spotless to qualify as "good", once you have established bad credit it can be very difficult to fix your credit history. Behaving responsibly financially is the best way to repair or establish a good credit history.