Types of Debt Instruments

by admin on September 20, 2014

People who have gone through some major event such as loss of job, prolonged illness, or divorce usually apply for a secured credit card. To this, borrowers are advised to make sure the card issuer reports to all credit reporting agencies. If they do not report, the borrower has lost a key benefit. As a rule, if you start getting offers for unsecured credit cards after having made on-time payments for several months, you will know that the card issuer is reporting. Make sure the credit card issuer does not flag the report as secured or prepaid credit card because you will find it difficult to rebuild credit this way. How long does it take before financial institutions offer you an unsecured credit card? Banks and credit card companies want to keep their customers and will qualify them for an unsecured credit card after making regular payments over a certain period of time. On average, it takes about a year to build credit and qualify for an unsecured card. Two types of debt instruments are taken into account when assessing the borrower’s credit history – personal loans and revolving credit such as personal lines of credit. Borrowers who have bad credit are often required to offer collateral as an additional guarantee. Thus, risk is less of a factor. People who apply for a secured credit card deposit money with the credit card company. The issuer can seize the deposit if the borrower is unable to keep up with payments.

To build or rebuild credit, borrowers need to have a good record with both revolving credit and installment loans. At the same time, borrowers with credit problems and histories of late or missed payments are viewed as high risk. They are either turned down by mainstream lenders or are offered unfavorable terms and hefty interest rates. That is why borrowers resort to Canadian secured loans. Those who have some valuable asset to offer against the loan stand a better chance of having their loan application approved. Many financial institutions are willing to offer a lower interest rate to borrowers who offer collateral. Borrowers find their monthly payments more manageable, and it is easier for them to budget. Regular payments, on the other hand, help rebuild credit.

Using a prepaid card or a secured credit card is another way to rebuild credit. Secured credit cards are offered by mainstream banks, many credit unions, credit card companies, and other financial institutions. Some banks offer unsecured credit cards only. Many banks started offering unsecured credit cards with higher fees and interest rates and lower limits. Still, it pays to shop around because using a secured credit card is a good way to rebuild credit.

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