También puedes leer este artículo en español, Date Crédito a Ti Mismo.

There are many terms to know when it comes to finances. One of them is credit.

From credit cards to credit scores, the topic of credit is broad and can be confusing.

In general terms, “credit is any arrangement in which you receive goods or services or money in exchange for a promise to repay at a later date,” said Francisco Herrero, president of Banco Sí.

Herrero said establishing good credit — the ability and resources to make payments — is important because you’ll likely have to borrow funds from a financial institution one day, whether it's for a home, a car or a new business. Some landlords also look at credit before renting out an apartment.

So what do you need to know about credit?

Credit Report vs. Credit Score

One of the most commonly heard terms when talking about credit is “credit score,” the three-digit number that shows institutions how likely you are to pay off a loan on time.

Typically, these scores range from 300-800. The range for a fair or good credit score is 670 and up. In order to raise your score, Herrero says the rule of thumb is to use less than 30% of your available credit and pay it off on time. 

A credit report, however, shows your whole credit history.

“It states when or where you applied for credit, whom you borrowed money from and whom you still owe. It also tells you if you have paid off a debt and if you pay monthly payments on time,” Herrero said.

A credit report is an explanation of a credit score. Requesting to see your credit report often can negatively impact your credit score as it makes the bank think you are having trouble getting good credit. Once a year, you can ask for a free credit report review.

Credit History

Once you get started using credit, it’s important to continue building on the credit you have. “One thing that will improve your credit is that you keep building that score over time. Five years of good credit history is better than having seven months of a credit history,” Herrero said.

One thing to avoid is opening too many accounts or asking too many financial institutions for loans.

“If you are going to 20, 30 financial institutions, applying for loans or credit cards, that will hurt your credit score compared to having just two or three credit requests,” Herrero said. “Because having a lot, the interpretation of that is that the person is having trouble getting credit, getting loans and continues shopping with different financial institutions.”

Perks of Good Credit

Herrero says there are three main benefits to having good credit.

“The first [benefit] is when you look for credit, you get better approval rates, meaning that the likelihood of you getting a loan or a credit card or a mortgage will increase,” He said. “The second is the likelihood of getting lower interest rates, so a person with an excellent credit score … will increase the likelihood of getting approved for a loan on a second, and probably the interest rate the person will pay is lower.

“The third benefit is better terms in that loan or credit. This means you might get a loan that you will repay over a longer period of time. Another component of that is probably getting a higher credit limit.”