Learning about credit, you would most probably hear about Credit report and credit score , two most important things you need to monitor on a regular basis. But knowing these is not enough. After all, the credit system is one which involves direct cause and effect relationships; that taking one variable, like credit report by itself will not help you understand how it affects your credit score and your credit activities.
In other words, there is more to credit than reports and figures. One of the things you should also give equal importance and understanding to is debt. Debt in simple terms is used to identify the amount of money you owe to a creditor. There are two kinds of debt. It could either be secured or unsecured.
Secured debt means that the amount you owe to someone is tied to an asset. This could be like your car for a car loan, or your house for a mortgage. When you are in a secured debt and you are not able to make payments, your creditor has the legal right to reposes the asset your debt is tied to. You shouldn t be shocked when people come to collect your car when you miss payments.
This is because automobile financing agreements usually give creditors the right to take your car anytime you are in default. You can however still get it back by paying your balance and paying additional for the towing and storage costs as well. Remember that if you can t pay your debts, the creditor can sell your car. So, if you think you can no longer pay for your dues, you can sell your car and use the money to pay your balance. This way, you don t have to pay for additional costs and your credit report doesn t have to suffer.
On the other hand, if your creditor can take your car, you can also lose your house on mortgage. This means that when you are already having troubles paying your mortgage, you should contact your lender. This way both of you can work out a payment agreement. However, you shouldn t rely on this because the creditor will only agree thinking that your financial difficulties are only temporary. When you resume to your regular payments, you can expect additional costs on the past due totals. Again, contacting your creditor for a special agreement is better than having a foreclosure item on your credit report.
Still, the special payment agreement is not granted every time. When you can not work this out with your creditor, the best thing you can do is to contact a housing counseling agency. There are many services out there to help people who are having trouble paying their mortgages.
The other kind of debt is called unsecured, and the most common of this is credit card debt, bills for medical care, signature loans and other debts for other services. Again, the best you can do is to see to it that you can pay for the money you are borrowing or your income permits you to purchase things. Remember too that it s always better to use cash, use your credit card only when necessary.
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This article has been provided by http://www.free-credit-reports.com , where you can compare credit report and identity theft protection services with this comprehensive chart of all credit report and credit score service providers.
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