The different types of credit
Content provided by a guest contributor.
As a small business owner, it is important to know all about credit. You need to know how to apply for loans and how to manage them. Almost everyone will find themselves in a position of needing a little extra help at some point in their lives.
There are various types of credit that you should be aware of in order to be able to weigh up what is best for you your particular situation.
The first thing to know is the difference between secured credit and unsecured credit.
Secured credit is secured against an asset, sometimes known as collateral.
Car and home loans are a common form of secured credit. In this case, you are loaned the necessary amount to buy a home or car with the agreement that you will pay it back over a set period of time. Because it is secured credit, failing to meet payments means the lender could repossess or take away your home or car.
Unsecured credit is the opposite: This is not tied to any asset. Getting unsecured credit depends on your creditworthiness and ability to repay.
A common example is credit cards: you can borrow and spend up to a specific amount, which you then have to pay back.
Whichever type of loan you take out, it is important to know beforehand how you’re going to manage your account. Managing your account starts even before you apply.
It’s important to know what kinds of credit are available, so that you can manage your finances accordingly and make the right borrowing decision.
*This article is provided by DirectAxis which provides you with easy-to-use tools that help you identify if you currently qualify for a loan.