Kinds of Credit:
Credit cards, Secured loans, Mortgage loans, Unsecured loans
"Kinds of Credit:
1. Credit cards. Many people today are credit card holders, because credit cards are more convenient than carrying around large amounts of cash. When you apply and are approved for a credit card, you sign an agreement to pay for your purchases at a later time. In return, you are issued a card which allows you to purchase goods and services on credit. There are a variety of different types of credit cards. Some may be used at only one store (Macy’s, J.C. Penney, Montgomery Ward, etc.). Other credit cards are general cards which can be used at any business which will accept them (Mastercard, Visa, American Express, etc.).
When customers are issued credit cards, they are generally given a credit limit or a set maximum amount that they can charge. This limit is often increased over time, as the customer proves that he or she is reliable and responsible about paying the debts incurred on the account.
If you decide you would like to apply for a credit card, you would be wise to shop around. Credit card companies and some store issued credit accounts, charge annual service fees. These fees vary greatly – anywhere from 25 dollars per year to 100 dollars per year. Also, when you make a purchase on your credit card account, if you don't pay the bill in full when it comes each month, you will be charged interest on the remaining balance until is fully paid. Like service fees, interest rates charged by different stores and credit card companies vary a great deal; anywhere from 14 to 21% a year.
Credit cards, just like bank loans, are an act of borrowing. One of the big pitfalls or dangers of credit cards, is that the consumer will overspend or borrow more than he or she can realistically repay. Don't forget, when you make purchases on your credit card, they quickly add up.
2. Secured loans. Banks, savings and loans, credit unions and finance companies, are all sources of credit. They loan money to consumers which must be paid back over time, with interest. Most larger loans taken out by consumers from these different institutions, require some type of collateral. If you borrow money for a car for example, the car itself becomes the collateral. The lending institution holds the certificate of ownership until the loan is paid. Some consumers borrow money using their homes or other real estate as collateral. This means if the loan is not paid, the lending company may take possession of the property and sell it, in order to pay off the customer’s debt. Money in a savings account may also be used as collateral against a loan. In this case, the consumer may be allowed to borrow up to a certain percentage of the total amount in his or her savings account. But until the loan is paid off, the consumer must not let the balance in the savings account fall below the amount that has been borrowed.
All loans which require collateral, whether that collateral be a house, land, other money or personal property, are called secured loans because they require the borrower to guarantee the loan with something of value.
3. Mortgage loans. Mortgage loans are large loans secured by property, usually a building and or land, and are paid back over a long period of time – up to 30 years. When consumers obtain mortgage loans, they sign a mortgage document or legal contract, in which they agree to allow the lender to hold the title or deed to their property until the loan is paid. Most home owners take out mortgage loans to purchase their homes because saving up enough cash to purchase a home could take a lifetime. Mortgage loans allow consumers to experience the pleasure of home ownership, while at the same time paying off their debt in installments.
4. Unsecured loans. Financial institutions may loan smaller amounts of money (usually under $10,000 dollars) to customers with good credit ratings or good credit histories, without asking for any collateral to secure the loan (called an unsecured loan). In doing so, they are trusting the consumer’s word that the money will be paid back. In order to obtain an unsecured loan, consumers must prove that they have a secure source of income and have a history of paying their debts responsibly and punctually."
web source:
http://www.ecec.muhsd.k12.ca.u...
for more information on credit, go to:
http://www.daveramsey.com
