There are different levels of lending in the USA. Each of them gives certain information to the potential lender about the borrower. Good credit profiles have all types of loan products. This article introduces readers the main products on the US credit market. They may be used to form a good credit history. These loans are:
- department store cards;
- credit cards;
Department store cards
Department store card is a credit card issued by a chain of stores: Macy’s, Best Buy, TJ Max, Victoria Secrets and etc. These are credit cards, that can be used only in stores of this network. It is easy to get this credit card. Usually, no stringent receipt requirements are imposed.
Revolving credit card
Revolving credit card (or simply a credit card) is a regular credit card, the credit line of which is renewed every time a debt is paid. A potential lender can make a conclusion of how successfully you can use renewable sources of financing. The report includes the type of credit card, the amount of the limit it has, the issue date, debt for the current period, the maximum debt that was recorded on the card.
Credit cards types
There are two main types of credit cards: unsecured and secured. Ownership of each of which gives information to a potential lender about your solvency and experience in using credit products.
- Unsecured credit card is a regular card that the bank issues without any deposits from you. You simply visit the bank institution, it processes your loan application and usually sets a credit limit at its discretion. At first, it can be small, usually $500, if you are just starting a credit history. Gradually you can either file for an increase yourself, or the bank will make this proposal for you.
- Secured credit card issued by the bank if an unsecured credit card has not been approved. The main purpose of such cards is either to start credit history when the bank cannot make a decision on the reliability of the borrower according to the available data; or improve bad credit history, for example, after individual bankruptcy or for other reasons.
It works as follows – you turn to the bank with a request to issue a secured credit card. You have the right to set a credit limit on the card within the amount of $300 to $10.000. This amount, equal to the limit of your card, is withdrawn from your savings account and put into special collateral (indirect) account. This account is used as a deposit in case of non-compliance with the credit card conditions. A card is issued to you with a balance equal to the amount of the indirect account. You use it as well as a real credit card: pay interest, if necessary; annual maintenance fee; make minimum payments, etc. After some time (usually from 6 months to 1.5 years), the bank reviews your report and, depending on the results, issues you a real credit card and returns your security deposit with a small percentage accrued on it.
An installment loan is a loan, with pre-agreed payment conditions. You pay a certain amount, which already includes interest every month. This may be a loan for a car, education, repair and more.
A cash loan is also called a loan. Having a loan shows the potential lender the minimum amount that you have already obliged to pay monthly. If you have this type of loan and you pay it on time – this is a huge benefit to your credit history. Such solvency shows how you can manage your budget. However, if you have a large loan and you have not yet paid even half, then sometimes it becomes difficult to get other loan products.
If you want to get a loan for the first time, then the bank may require a collateral deposit. This will work the same as with a secured credit card. An amount equal to the amount of the loan is withdrawn from your account and placed in a special account. At the end of the loan term, the deposit is returned.
A mortgage is a loan for housing. It is the most significant source of positive information in your credit report. A mortgage is usually provided for a long period, usually up to 30 years, often with a fixed percentage and always on the security of the real estate itself. Depending on the conditions and your credit score, you may be asked for a downpayment (advance payment for real estate in the amount of 10 to 30% of its value). The presence of past mortgages shows the lender the highest degree of banks’ confidence in a client’s solvency.
Knowing the basic credit instruments, as well as other additional information that you can read in other articles, will help build a good credit history. It takes a certain amount of time, constant monitoring of the information in their reports, the rational use of available credit funds, competent management of credit cards.