Credit Smart

Whether you’re looking to obtain a loan or need help improving your credit score, we want to find ways to extend you credit. In this chapter, you will learn the fundamentals of credit, how to improve your credit score and how to obtain the loan you need.

Unit 1: Applying for Credit 

Credit Terms & Conditions

When you decide the time is right to apply for credit, there are some things you should consider before you apply. Each type of credit comes with its own terms and conditions. 

  • Secured credit is linked to property or collateral that you own securing payment for the creditor by giving them the property if you default including auto loans, mortgages, home-equity loans, or business loans.
  • Unsecured credit requires no collateral and is not secured by property. Some examples are student loans, medical bills, and credit cards.

Ask your credit union for help in finding a line of credit that is right for you.  The most common types of credit are listed below: 

  • Revolving. Monthly minimum payments vary based on balance—the most common example is a credit card, retail card, or gas card.
  • Open. A consumer credit line that can be used to a certain limit or paid down at any time such as a home equity line of credit.
  • Installment.  Monthly amounts are set for the life of the loan—common examples are student loans, car loans, or mortgages.

Qualifying for a Loan

When you apply for a loan, your credit union will review several factors to determine if you qualify for a loan:

  • Collateral.  An asset or something of value that a lender can take from you if you do not repay the loan. 
  • Capacity.  Lenders are concerned with whether or not you are able to repay a loan. So they will look at your income and payment history.  But if you carry a lot of debt or have an uneven work history, lenders will view these factors as risk and you may not qualify for a loan.
  • Character.  Lenders want to know if you’re trustworthy.  One measure of this is to look at your credit record.  A history of paying bills on time shows that you are responsible with your finances.
  • Credit score. Lenders look at your credit score—a numerical measure of risk.  Having a high score will create opportunities for future credit; a low score will limit your opportunities.