Collateral And Credit

As a consumer, you may encounter a request for collateral when trying to obtain a loan. Collateral can be a key tool in any loan request.

What Is Collateral?

Collateral is any asset you use to obtain a loan. Collateral acts as security against a loan. If you are unable to pay the loan or otherwise meet its conditions, you may forfeit your right to the collateral.

When Is Collateral Used?

Frequently, collateral is used in larger loans. However, collateral is also used for some credit cards called secured credit cards. It may be used in order to guarantee larger purchases or in cases in which a consumers credit rating and credit score is otherwise insufficient to obtain credit.

Using Collateral Wisely

Collateral can help you gain credit as a consumer. However, because you put the collateral at risk when you engage in a collateral based loan, you should be sure that you are willing to accept any conditions or consequences of the arrangement.

You can read more here about secured credit cards. This article is part of TakingCredit.com’s credit card glossary. You can learn more about credit through our archive of credit card tips and our credit card blog. Photo by Refracted Moments.

Tags: acts, collateral, consumers, Credit Card Tips, credit rating, credit score, glossary, loan collateral, loan request, loans, photo, risk, secured credit cards, tips