With almost 80 percent of American families holding a credit card, it's easy to see credit's stronghold on finances. Two main types of credit, secured and unsecured, should be understood when applying for any line of credit.
Secured Credit
Basically, secured credit refers to credit based upon an asset in your possession. In terms of credit cards, this means some type of deposit is required. Often, secured credit cards require a savings account and the amount held there will be used to offer a credit line of 50 to 100 percent of the held balance. Home and auto loans are also considered secured credit. With any of these credit lines, defaulting leads to the seizure of deposit, automobile or home. Because of this the lender is at less risk for loss, so often secured loans may be easier to approve for applicants with lower credit rating scores.
Unsecured Credit
Unsecured credit is the opposite of secured credit, and also the most common form of credit cards. Persons seeking unsecured credit will not be expected to have any deposit or collateral for the loan. Approvals for unsecured loans are based upon financial status and credit rating scores, so they are often more difficult to obtain.
Warning
Both types of credit come with some pitfalls, especially for credit cards. Secured credit cards are useful for building a positive credit score, but some companies offer deals that are deceptive. Before sending any money for deposits, make sure to verify the company's business record.
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