Finance

Making money is hard enough. Making wise credit decisions is harder. With so many institutions claiming to have the “best deals,” navigating the credit maze can prove to be futile, at best. When high stakes purchases are on the line, it can be even harder.

For example, anyone who has applied for a mortgage or car loan can tell you that doing so can be a stressful, difficult time. For those with credit problems, the loan process can be even more difficult, as bad credit can cause less-than-desirable loan terms—or can ruin their chances for obtaining a loan at all. Understanding what different types of credit are, and how they influence your credit rating, can ensure that you make the wisest financial decisions before buying a home.

Credit Cards
Once thought of as a virtual necessity by consumers worldwide, credit cards are now starting to garner negative attention because of high interest rates and higher payments. Often, users find themselves caught in a vicious cycle of trying to pay off cards—but needing them for everyday expenses. This can be bad for anyone looking for a mortgage. As unsecured debt, credit cards are considered a higher risk by lenders. High balances and late payments earn even more negative marks.

Those seeking car or home financing, eliminating credit card debt can greatly improve financing terms. Are you struggling to make payments? Make payment arrangements with your credit card company. Doing so may help save your credit score and prevent financial disaster.

Secured Loans
Secured loans (such as mortgages) are viewed as less risky by lenders, as they know that customers are less likely to default on payments. Home equity loans and mortgages that are in good standing will boost your score on a credit check, increasing the likelihood of obtaining more loans. In addition, these types of loans often have some sort of tax credit, making them more appealing to consumers. Those needing a little extra cash may consider taking out a home equity loan (remortgage) as opposed to racking up more unsecured debt.

Personal Loans
Personal loans are often in smaller amounts, with a fixed repayment term. They are generally unsecured and have a lower repayment term. If you’re looking for a personal loan, obtain a credit check prior to applying so that you have an idea where you stand. If you have a personal loan, be aware that personal loans are viewed more favorably by lenders than other unsecured loans, such as credit cards.

Cash Advances
Growing more popular each day, cash advances are very short-term loans usually taken out by people who need extra money until the next payday. They require no credit check and can have interest rates as high as 600%-900%, depending on how long your repayment term is. Considering a cash advance? Avoid it if at all possible, as they can (like credit cards) create a vicious, damaging your credit beyond repair.

No matter what your credit score, waiting for your credit check for a mortgage or car loan can be a stressful time. Managing you credit efficiently before you ever apply will ensure that the loan process is as quick—and cost-effective—as possible.