One of the most important distinctions to understand in personal finances is the difference between secured debt and unsecured debt. Whether or not your debt is secured can make a big difference in how you proceed in a number of different financial situations.
Secured Debt
Secured debt is debt that uses some asset as security. You pledge an asset in return for getting the loan. If you default on the loan, the lender has the option of repossessing the asset in order to help recoup the money lent to you. A mortgage is a good example of secured debt. If you don’t make your monthly payment, then your home could be foreclosed on. A car loan is another example, since the lender can repossess your car if you stop making payments. Sometimes, you may have to offer collateral — such as a valuable piece of jewelry — to get certain loans.
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Categories: Debt
When it comes to paying down debt, it is important to make sure that you are doing what you can — as fast as you can. Credit card debt normally comes with high interest rates, so it is vital that you try to pay it down as fast as possible. The longer it takes to pay down your credit card debt, the more money you waste paying interest. Generally, there are two main ways you can accelerate your credit card debt pay down:
- Cut expenses
- Increase your income
Of course, if you combine the two methods, you will be more likely to pay off your credit card debt even faster.
Image Source: The Comsumerist via Flickr
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Categories: Credit Score, Debt
We’ve been looking a little more closely at the factors that make up a credit score recently. So far, we’ve addressed the following:
Together, these three factors account for 80% of your FICO score. The final 20% of your score consists of two different factors, weighed at 10% each: types of credit you have right now and new credit accounts. Even though these factors aren’t weighed as heavily when figuring your credit score, they are still worth paying attention to.
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Categories: Credit Report, Credit Score
A couple of days ago, I addressed the importance of making on-time credit payments. Your payment history accounts for about 35% of your FICO credit score. However, payment history is closely followed in importance by your credit utilization. Your credit utilization accounts for about 30% of your credit score. This means that if you want to have a good score, you will need to pay attention to how much of your available credit you are using.
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Categories: Credit Report, Credit Score
Because credit scores are so important in the world of finances, many are interested in figuring out how they can improve their scores. Credit scores represent your financial reputation, and poor financial reputation can result in paying more in interest or paying higher insurance premiums — or being rejected for some financial products and services altogether. There are a number of agencies and others that claim they can help you “fix” your credit score. However, the most important thing you can do for your credit score is to make on time payments.
Your Payment History and Your Credit Score
Because your credit score is meant to be a measure of your credit habits, it is not surprising that your payment history is the most important factor considered in credit scoring models. Indeed, according to FICO, the company that is most prominent in credit scoring, your payment history accounts for 35% of your score. Your credit utilization accounts for 30% of score, and is next in importance to your payment history. Read more…
Categories: Credit Report, Credit Score
