How To Qualify For Different Types Of Types Of Credit Lines

Many American adults have wished that there was a Finances 101 course when they were in high school. A recent study from the FINRA Foundation found that two-thirds of American adults couldn’t pass a basic financial literacy test. This is backed up by the National Financial Capability Test. The average score for the 17,000 people who took it was just 63.17%.

One of the most misunderstood aspects of finances is credit. From applying to interest rates, the majority of people don’t know how credit actually works. Some people see it simply as debt and think any debt is bad debt. However, that’s not always the case.

Qualifying for a credit line makes it possible to purchase high-priced items without having to save the full amount. It can also help you cover unexpected expenses or raise capital for investments.

How To Qualify For Different Types Of Types Of Credit Lines

To understand credit you don’t have to get a financial services job. It really hinges on getting a firm grasp of the basics. There are two primary types of credit lines:

Secured credit lines involve some sort of collateral that serves as security in the event the borrower fails to repay. An example of a secured credit line is a car loan. The car itself can be used as collateral.

Unsecured credit lines are made without any collateral. That’s why these types of loans are considered riskier for the lender. One of the most common types of unsecured credit lines is a payday loan.

Either one can be short-term or long-term. It all depends on the terms of the agreement and what the lender is willing to entertain. But first, you have to qualify.

Here’s what borrowers need to make themselves a top candidate when qualifying for a credit line.

Qualifying for an Unsecured Credit Line

Unsecured credit lines like a personal loan, credit card, store card or payday loan are usually limited to a lower amount and the application process is less formal. Today, you can apply online to qualify for a variety of unsecured credit lines and get approved on the same day.

The type of information you’ll need to provide includes:

  • Name
  • ID number (documentation may be required)
  • Address
  • Proof of income
  • Current debt obligations
  • Employer information
  • Phone number and email

Typically an applicant needs to have a very good credit score to receive an unsecured credit line. These types of loans are more risky, so the safer you seem as a borrower the better. Lenders want to see that you’ve used credit before and repaid it responsibly.

Keep in mind that the interest rates tend to be higher on unsecured credit lines. Lenders do this to make up for the increased risk of having no collateral. You’ll need to boost your credit score as high as possible before applying to get the best rate possible.

Two of the easiest ways to do that is to pay all your bills on time every month and pay down debt. Focus on paying down the debt with the highest balance to improve the debt-to-credit ratio. This will also improve your debt-to-income ratio, which is good for your credit score.

Qualifying for an Secured Credit Line

One of the biggest differences between a secured credit line and an unsecured credit line is the lender will want to know about the collateral. If it’s a home loan, the lender will require that an appraisal be done along with a title search and possibly a survey. For a car loan, the lender will want to know the make, model, year, miles and crash record.

The advantage of a secured credit line is the interest rates are typically lower. When the interest rate is lower the overall cost of borrowing is much lower. You’ll need to provide a lot of the same information as you would if applying for an unsecured loan, plus a few extras including:

  • Name
  • ID number (documentation may be required)
  • Address with verification
  • Proof of income
  • Current debt obligations
  • Employer information
  • Phone number and email
  • Social security number
  • Bank and investment account details
  • Date of birth
  • Past residences

The lender will scrutinize your credit report, paying attention to your repayment history. As long as you have a good credit history and collateral you should be able to qualify for a secured loan.

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