Credit and Loans

Throughout the course of life, most people make several major purchases, such as buying a new car or a new home.


However, it is difficult to save up enough cash to purchase big ticket items outright. Loans are typically available for larger purchases, but receiving one requires credit.

Living without credit can become difficult, as credit scores affect aspects of a person’s life outside of finances. While credit scores were originally used to make lending decisions, they are now also used to make decisions on employment, renting and insurance coverage. Not having a good credit score can limit your options, so it is important to keep track of your score and learn how to keep it in good standing.

Though having a good credit score is important, life circumstances may make it difficult to maintain it. Most Americans have large amounts of debt, especially when it comes to student loan and credit card debt. While having some debt can improve a credit score when payments are made regularly, it can damage a credit score when the debt is not repaid. Staying informed on credit and loans and knowing what it takes to get rid of debt and build your credit can improve your life in the long run.

Lending and Credit Basics

For most Americans, borrowing money through a loan is inevitable. Loans are usually necessary to finance life events, such as attending college, purchasing a new car or home and even making small day-to-day purchases with a credit card. While a loan can seem like a huge liability, it can actually be beneficial to the loan holder. Loans allow individuals the opportunity to make purchases they would otherwise not be able to make while building their credit and improving their lives.

Before seeking a loan, it is important to understand how loans work and any lending terms you are not familiar with. While it is impossible to anticipate some life changes, borrowing wisely can help you maintain good credit. While there are many kinds of loans that can be used to pay for almost anything, it can be risky to borrow for unnecessary expenses.

A major factor in borrowing is credit. The most basic definition of credit is an individual’s reputation as a borrower and his or her ability to borrow. Lenders use credit scores to determine whether or not a borrower is trustworthy. The better a borrower’s credit score, the more likely he or she is to be approved for the loan. Having a better credit score could also mean getting better terms on a loan, like lower interest rates.

Types of Loans

At some point in life, a loan may be necessary to help you finance certain purchases. You may even feel the need to borrow money in order to get through certain life events. Knowing the types of loans that are available and the risks involved with each type of loan can help you make good financial decisions that will keep you from defaulting on payments.

The first loan most people apply for is a student loan. Student loans can help college and university students afford an education they would otherwise not be able to pay for. While scholarships and grants are always a better option, student loans can be key in financing an education. Student loans provided by the federal government typically have better terms than private student loans, but they provide a limited amount of funds to eligible students.

Financing the purchase of a brand new car usually requires a loan. Vehicles are a large expense, and most Americans cannot afford to pay for a new car or truck in cash. Auto loans are necessary for most people who want to purchase a new car, so knowing how to get a good deal on a loan is important.

Other kinds of loans are less common, but do have many risks to be aware of. Personal loans are typically used by those who need a large sum of money to pay for life events, such as a wedding or vacation. These loans may be helpful, but they also involve a lot of fees which may make them inconvenient. Those who need smaller loans tend to use payday loans. Payday loans can be a good resource in the event of an emergency, but they can easily lead borrowers into debt.

Types of Credit Cards

Credit cards have become universal, and with hundreds to choose from, selecting the right one can be difficult. While credit cards are often viewed negatively due to the overwhelming amount of credit card debt held by Americans, they can actually be a useful tool in building credit.


Every credit card has its own benefits and terms, so understanding the differences between credit cards before choosing one can help you select the one that fits your needs. Some cards offer rewards like cash back or airline miles, but they have higher interest rates. Other cards have lower interest rates but offer very few benefits outside of that. If you have never had a credit card before or have very little credit, there are certain cards that offer terms that are helpful for building credit. Choosing the right type of credit card and using it responsibly are key factors in avoiding credit card debt and the lowering of credit scores.

Debt Assistance

Debt can be an overwhelming source of stress, especially when making monthly payments becomes a challenge. At times it can feel as though there is no way out, but that is rarely the case. However large or small the debt owed is, there are debt assistance resources available to those who cannot get out of debt on their own.

Whether or not you have debt, a credit counselor can offer you advice on your specific financial situation. Credit counseling services are typically offered by nonprofit organizations for free or at a low cost. Counselors can help you make sense of your finances as well as help you set up a plan to manage and repay your debt. Seeking counseling services can help you decide which debt relief option is right for your situation, whether it be settlement, consolidation or bankruptcy.

Credit Reports and Scores

An individual’s credit score is a crucial part of his or her financial life. Credit checks are performed for a variety of reasons, and having a low credit score can bar someone from getting a job, receiving a loan or being approved for a credit card. Renters may also be denied housing if their credit history shows any signs that they may be a financial risk to the landlord.

Building up a credit score can take some work, especially for those who are establishing credit for the first time. Repairing a credit score that has taken a hit due to debt is also difficult, but there are many resources available to help borrowers get out of debt. Credit scores can also take a hit in cases of stolen identity. Having a stolen identity could mean owing money on credit cards that were opened by a stranger. Checking credit scores and reports on a regular basis is the best way to catch any errors before they become an issue.


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