Debt and Credit

by Francisco Javier ArceoOctober 3, 2019

You must gain control over your money or the lack of it will forever control you. - Dave Ramsey

What is debt?

Debt is money that you owe someone else.

When you can't buy something immediately, you can borrow money from a person or company to pay for what you want or need (like a house or to fix your car) but you have to pay it back eventually.

The money you owe is called debt.

If you aren't able to pay your debt right away, then you can use credit to pay the person or company back.

What is credit?

Credit has different meanings under different circumstances. For most people, credit is an agreement between a person and a company (like a bank) in which the person is given money now in exchange for paying the bank back later with additional interest.

Examples are an auto loan, a credit card, a mortgage, student loans, or making a purchase with a monthly payment plan. These are all uses of credit that rely on a company lending you money now and so you can pay them in the future (plus interest).

Do I have credit?

If you've ever borrowed money from a bank or company, then you probably have credit. This could have been money used to buy a car, house, cellphone, and more.

How do I get credit?

Credit in the US can be complicated but don't worry, we're here to help.

Typically, in order to get someone to give you credit (like a loan) you have to show them that you have a history of paying companies back. Showing that you've paid companies back in the past helps build your credit history.

Using your credit history, the Credit Bureaus* will create a credit score. The company will use a credit score to decide whether or not they want to give you credit and how much they want to charge you in interest.

*Note: the Credit Bureaus are heavily regulated companies that keep data about you and your payment history, which they sell to companies that may want to offer you some amount of credit.

What is a credit score?

A credit score is a number that tries to predict how likely you are to pay someone back if they lend you money.

If you have a high credit score, a bank will likely give you an offer of credit and a low interest rate, which is great! If you have a low credit score, you may not get approved or if you do get approved they may charge you a higher interest rate.

How do I improve my credit score?

There are many different ways to improve your credit score; the easiest way is to pay all of your bills on time. This can range from credit cards, auto loans, to even your gas bill.

Payment history has a big impact on your credit score, so you should definitely try to make it a priority. It's also just a good habit to keep track of your bills! There are many other things that can change your credit score and we'll cover those in future blog posts.

Why is this important?

Having a good credit score is important because the higher your score is, the less you'll have to pay someone else for things and we don't like seeing your hard earned money leave your pocket.

We understand that going into debt may be necessary to improve your family's life, and family comes first.

Here at Unidos we are family. We want to help you manage your debt better, so you can gain control of your money instead of it controlling you.