Many a time, people find themselves in need of credit to finance their requirements. It could be the money they need to meet their general expenses until the next paycheck or the amount required to finance a new home. Below is a list of the types of credit that people can explore in order to meet their financial needs.
Revolving credit accounts are those that can lend credit for monthly expenses such as food, clothes, transportation and other minor expenses. The payment for these accounts happens on a monthly basis and depends on the monthly expenditure of the user. This type of credit does not require the user to pay the entire amount due within a month; he can choose to revolve some or all of the credit to the next month. Although, interest is charged on the revolved due amount and there is a cap on the credit that one can borrow.
Non- revolving credit
Also known as installment agreements, these loans have fixed payments over an agreed upon term. The borrower does not have to pay the entire loan amount within a month. Instead, he has to pay fixed amounts as monthly installments towards the loan till the full amount becomes cleared. An Annual Percentage Rate (APR) applies to the principal, and the interest calculated for the entire repayment period. Installment credit includes long term and short term loans.
Secured credit involves loans that the borrower can take against an asset, such as property, car, or a home. This type of loan follows the same principles of non-revolving credit regarding loan repayment. It is a secure option for lenders as they will have the legal course to seize the securing assets in case the borrower fails to repay the loan.
Unsecured credit does not require the borrower to provide collateral to the lender to obtain the loan. This type of loan givoften takes the form of credit or retail cards. Lenders usually give this kind of credit based on the individual’s salary or his credit score.
Some of the lenders of these loans require the user to have a good credit score.
What is a credit score?
A credit score is a rating given to a person based on his credit history and is a measure of his creditworthiness. Lenders use credit scores to determine whether an applicant qualifies for a loan and at what interest rate. Credit scores help lenders avoid losing money due to bad loans. A credit score is usually calculated based on a credit report provided by credit bureaus.
How can you get a loan with your credit score?
A good credit score can help consumers to secure loans or credit with low-interest rates. Each credit rating agency uses their set of score ranges to help decide if a consumer’s score is bad, fair, good, or excellent. Here are a few advantages that a good credit score has to offer.
- A good credit score can help you in getting better interest rates on your mortgage or car loan.
- Your insurance rates may also be lower as people with a good credit score are considered to be relatively trustworthy.
- It is relatively easy for individuals with a good credit score to obtain the seed funding for launching small businesses. On the opposite end of the spectrum, a bad credit score can create some formidable barriers when searching for outside funding.
- Credit scores may also affect the interest rates on your credit cards and other rewards that you get as a card holder.
How can you earn a good credit score?
To get a good credit score, you should have an excellent track record of repaying your loans, mortgages and other credit you may have borrowed. Here is a list of tips you can follow to get a good score.
- Paying bills on time goes a long way in ensuring a good credit score. Not paying bills within the stipulated period can put a dent in your credit score ratings.
- When exploring credit options, start off with small options such as student cards, secured credit cards or retail cards. These cards tend to have lower credit limits that can make it easy for you to repay your loan.
- Diversifying your credit options can also have a positive impact on your credit scores. Opt for a small student or car loan when you need it and pay it back on time to build an excellent rating.
The different credit options on offer can help users in situations of financial need. But it is important that a consumer understands that each of these credit options can affect his credit rating. Paying bills on time and keeping credit records clean can help a person obtain money quickly in situations of financial need.
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