Credit enables you to access the much-needed finances upfront to buy goods or services and repay them within an agreeable period with interest. To get credit, you need to be credit-worthy.
Your creditworthiness is determined by your ability to repay your loans. Lenders will gauge your creditworthiness using your credit score and credit report. So, you have to keep your credit score high. Lenders prefer borrowers with high credit scores because they‘re low-risk–a high credit score implies that you’ve shown good credit repayment behavior over a significant period.
Fortunately, there are many simple ways to repair your credit score and do a credit cleanup. For instance, you can use a reputable credit repair company to fix your bad credit; you just need to learn how the credit repair process works and find the right credit repair organization to work with!
What Is Credit?
Credit is a form of loan given to a borrower by a lender with the promise of repaying it within the agreed period, usually with interest. It can also be defined as the borrower’s ability to obtain a loan from a lender with the promise of repaying it later.
There are many reasons why you might request credit, such as when you’re paying for critical services like medical treatment and education, or when you’re buying a house or a car. Credit will help you pay for these things, even when you don’t have the cash readily available.
There are several types of credit that you can get from your lender. Here are the most common types of credit:
- Secured credit: Secured credit involves getting a loan from a lender and providing your valuable possession like a car or house as collateral. In this type of credit, the lender will hold your logbook or title deed until you repay the full amount.
- Unsecured credit: An unsecured credit doesn’t require collateral. The lender gives you credit based on your creditworthiness. This can be a personal loan or a credit card.
- Installment: This type of credit involves borrowing money upfront and repaying it later in installments over an agreed period. This can come in the form of a mortgage, a car loan, or a student loan.
- Revolving credit: With this type of credit, you can borrow a specific amount of money, repay it, and borrow the same amount again. This includes credit cards, lines of credit, retail cards, and other related loans.
- Charge cards: This type of credit requires you to clear your loan within a specific billing period.
How Credit Works
As mentioned above, credit is a loan given to a borrower by a lender. Before you get the credit, you have to agree to the lender’s terms of repayment, and perhaps sign a credit agreement for legal purposes.
The lender can be a financial institution like a bank or a microfinance institution, or even a private credit card provider. You’ll need to express your interest in the loan through an application which the lender can either approve or disapprove, depending on your credit score and other important factors.
The credit can come in the form of cash, line of credit, or credit card. If the credit is secured, you’ll need to provide collateral, which will be held by the lender until you clear your loan. If you’re unable to clear your secured credit within the agreed-upon period, your lender is at liberty to sell the collateral to recover the money. In some instances, you can renegotiate the repayment terms with the lender.
Can you pay a credit card with a credit card? No, but you can use other credit card payment options like balance transfer and cash advance to pay another credit card balance.
Lastly, be careful when applying for credit because some unscrupulous lenders offer secured credit under unrealistic terms with the aim of auctioning your collateral when you fail to repay. So, it’s important to take any credit fraud alert seriously and to read online reviews of your preferred lender to know what other borrowers say about them.
Of course, working with credit repair experts like those from The Phenix Group for guidance on the best ways to build and restore credit is your best bet! We’ll make sure you choose the best options to keep your credit on track.