Your credit could be the most important aspect of your financial health. Poor credit could cost you thousands. Read below for informative tips and articles and maintaining your credit health.


The Basics of Credit

What to know before you borrow

In its most basic sense, credit means having the use of something before you pay for it. This ability to borrow adds flexibility to planning and makes it possible to pay for expensive items over a period of time. There are many types of credit that you can choose from and each has its own terms and purpose.

Secured Credit

With secured credit, an asset (called collateral) secures the loan. Because of this security, the lender assumes minimal risk – if you miss a certain number of payments, they can take the collateral. The lender doesn’t have to go the expense and hassle of taking you to court and winning a judgment before foreclosing on your home or repossessing your car.

There are two types of secured credit. It may either be a loan (closed-end) or a line of credit (open-end):

Secured, closed-end
With secured, closed-end loans, the item you purchase is held as collateral. The balance, including interest, is calculated into equal monthly installments that you repay over a specific period of time. Common examples of secured, closed-end credit include home, vehicle, and boat loans.

Why get a secured, closed-end loan? It is usually the best, and often only, way to buy very expensive items. Sure, it is possible to buy a car with a credit card – but the interest rate would be far higher than what you could get if the loan is secured by the purchase.

Secured, open-end
Secured, open-end credit is a type of revolving credit that is secured by a cash deposit or an asset. These debts can be repaid in a single, multiple, equal, or unequal payments. Examples of secured, open-end credit include home equity lines of credit and secured credit cards.

Why get a secured, open-end line of credit? Interest rates for home equity lines of credit are typically low, and you can usually deduct some of the interest from your income taxes. Remember though, that these are secured loans – if you can’t meet the payments, your home is in jeopardy. Secured credit cards allow you to begin in the world of credit. All you need to do is put down a small deposit as security and you can start charging – and building a positive credit history.  

Unsecured Credit

Lenders grant unsecured credit without requiring anything from you as security. There is a considerable amount of risk on the lenders' part, because if you fail to pay, they have to take legal action to recoup the money they lent. This is why unsecured credit generally carries a higher interest rate than secured credit. However, if you have proven yourself as a good credit risk (by having a long history of borrowing and repaying money responsibly) the interest rates can be attractive.

As with secured credit products, unsecured credit also comes in closed-end and open-end forms:

Unsecured, closed-end
Loans requiring no collateral are types of unsecured, closed-end credit. They are sometimes referred to as signature loans or personal loans, and as with any loan, you are expected to repay it in equal, monthly installments.

Why get an unsecured, closed-end loan? They can be great for consolidating debt or for purchasing an item that you want to repay over a specific number of months or years. With a loan, you reduce your balance gradually and steadily with each payment you make – as opposed to a credit card where it is possible to maintain a never-ending balance.

Unsecured, open-end
Credit cards are unsecured, open-end credit instruments. The financial institution sets such terms as your credit line, interest rate, and grace period (the number of days you have to pay before finance charges are added to the balance). You will receive monthly bills and the minimum payment due is based on a percentage of your current balance and sometimes the interest rate. If you spend more than your limit or pay after the due date, you’ll be charged penalty fees. There are several types of credit cards – general-purpose cards can be used virtually anywhere while retail cards may only be used at particular retail establishments, such as a department store or gas station.

Why get an unsecured, open-end line of credit? Credit cards are valuable payment tools. If you use them regularly and stay out of debt, you may qualify for "premium” cards, which come with higher credit limits and enhanced customer service. Some credit cards offer points, rebates, or cash-back rewards where the more you use them, the more benefits you receive. When you use credit cards responsibly, you create an excellent credit history which will help you finance expensive items like a home or vehicle at the very best interest rates.

Whichever type you get, read and understand the terms of the loan or line of credit before you sign and be sure to only borrow what you need and can repay. It is incredibly easy to take on more debt than you can afford. Whether the balance is secured or unsecured, the consequences for falling behind are severe. However, if you borrow wisely, you can come out ahead and achieve your financial goals quickly and affordably.

Educational Articles & Podcasts

Through our partnership with BALANCE, we are able to provide you with these educational articles on credit health, credit reports and using credit wisely. BALANCE has certified financial counselors available to help you with financial counceling, creating a budget, reviewing your credit report and much more.

Articles

Are You In a Credit Card Crisis?

Authorized Credit Card Users: Making Informed Choices

Bankruptcy Facts

The Basics of Credit: What to Know Before You Borrow

Credit Counseling and Debt Repayment Plans Can Help

How to Communicate With a Creditor

Payday Loans

Should You Get a Store Card?

Steps for Rebuilding Credit

The True Price of Credit

Using Credit Wisely

Common Credit Report Misunderstandings

Credit Report Fraud Alerts

How To Access Your Free Credit Report

Podcasts & Learning Modules

The World of Credit Reports
With an understanding of credit reports, you can take the necessary steps to maintain a positive credit standing.

Podcast

Online Interactive Learning

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Credit Matters
Using credit wisely will help you achieve your goals while avoiding financial pitfalls.

Podcast

Online Interactive Learning

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Rebuilding After a Financial Crisis

There are many things in life that can derail even the best money management plans, but with hard work and dedication, a healthy financial future is possible.

Podcast

Online Interactive Learning

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Financial First Aid
Learn how to create a plan to get back on track after experiencing a financial crisis.

Podcast

Online Interactive Learning

<Listen><Download><Start>

Helpful Links

Use the links below to learn more about your credit & credit score, or to request your free annual credit report from each credit bureau.

Annual Credit Reports

Equifax

Transunion

Experian

 
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