Frequently Asked Credit Questions
What are the different types of credit?Generally, credit is organized into three major buckets:
- Revolving credit. Where a consumer borrows money from a lender and pays it back at the end or makes partial monthly payments (e.g., Visa and MasterCard).
- Charge credit. Where the lender provides the consumer with a loan under the presumption that it will be paid in full at the end of the month (American Express).
- Installment credit. Occurs when the consumer agrees to finance a debt with monthly payments over a predetermined period of time (e.g., mortgage or vehicle loan).
How do you begin to establish credit?
Start by applying for a credit card. The companies that monitor credit history compile information based on your payments and responsible consumers build up a good credit report by promptly paying off what they owe. A second consideration, especially if the consumer did not qualify for a conventional credit card, is to apply for secured credit. This method lessens the lender’s risk by having access to some kind of guaranty from the borrower in case of default. An alternative way is to have a person with a proven history of good credit co-sign a loan. These co-signers are a form of guarantee diminishing the lender’s risk of non-payment.
What happens if your request for credit is denied?You may be denied credit for many reasons, but the four common reasons are:
- Insufficient income
- Short job history
- Short time at current or recent address
- Poor credit history