What Is Credit?
Credit in essence is money you borrow, generally with interest, that you can use to purchase goods and services. Unless you have large amounts of cash at hand, credit is necessary. Staying on top of your credit and ensuring you maintain a healthy credit score is extremely important.
Why Is Credit Needed?
Credit is necessary because cash to make large purchases, such as a new house or car, are rarely readily available. Credit allows us to pay for a lot of things we want but then we end up being bound to the terms and conditions of paying that money back — whether that be the specific timeframe, the amount of interest or other conditions.
Your friends at Superior Scores can help you understand your credit profile and see if you have items on your credit report that may be affecting it.
Types of Loans
There are four ways you can borrow money, each with its own advantages and disadvantages.
- Revolving Credit: Credit cards are a great example of revolving credit. Revolving credit is a line of credit where the customer gets a certain amount of available funds to use as they please. The debt is repaid periodically and can be borrowed again once it’s paid off.
- Charge Cards: Unlike a credit card, charge cards must be paid in full each month. If the balance is not paid on time and in full, penalty fees are often added. The difference between a charge card and a regular credit card, is that charge cards do not have a spending limit and most of the time require that you have perfect credit. American Express being a great example, though they also offer credit cards.
- Installment Loan: Auto, mortgage and personal loans fall into this category. These are loans where you are loaned a set amount of money and the borrower gives you a certain amount of time to pay it back. The monthly payments are pre-determined and interest charges are included.
- Service Credit Loan: Known as non-installment loans, service credit loans are loans that allow borrowers to pay for a service or membership at a later date, with payments often being due the month following the service. Unpaid balances will incur a fee, interest or other penalty charges. If the borrower does not pay, the service is canceled. Types of service credit loans include your cell phone, electricity and water bills.
Secured vs. Unsecured Loans
There are two different types of credit loans: secured and unsecured. Secured loans are those borrowed where there is some type of asset or collateral, such as a home or an automobile, attached to it. An unsecured loan as no collateral attached to collateral it. Credit cards and charge cards are considered unsecured loans.
What Is a Good Credit Score?
The type of loan and how much of it you can get all depends on your credit score. Scores range from 300 to 850, with anything above being 700 being good. The higher your score the better and the more credit you can qualify for. Your score will help lenders determine how much to lend you and at was interest rate.
If you’re not sure of what your score is or are struggling with damaged credit contact us at Superior Scores, we can help.
How to Determine Your Credit Score?
A credit report would be the best way for you to know your credit score. Your credit score is calculated based on the amount of money you’re borrowing or have borrowed and how you have paid back these debts. Your past credit history will help lenders determine if you are able to get a loan and, if so, at what interest rate. The higher your score, the lower your interest rate. Your credit score can also be used for other purposes, including your ability to rent an apartment.
Our advice to you, make your credit score a priority. Keep it as healthy as possible.