ECONOMICS
CREDIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The lower a person’s credit score the less collateral he/she has to put up
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The higher a person’s credit score, the less collateral a person has to put up
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There is no correlation between collateral and credit score
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None of the above
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Detailed explanation-1: -A secured line of credit is guaranteed by collateral, such as a home. An unsecured line of credit is not guaranteed by any asset; one example is a credit card. Unsecured credit always comes with higher interest rates because it is riskier for lenders.
Detailed explanation-2: -Collateral can indirectly help you build credit if it backs a secured loan that you repay on time. Payment history is the largest factor in your credit score, which means paying all your bills by their due dates can strengthen your score.
Detailed explanation-3: -Collateral is an asset or form of physical wealth that the borrower owns like house, livestock, vehicle etc. It is against these assets that the banks provide loans to the borrower. The collateral serves as a security measure for the lender.
Detailed explanation-4: -Collateral is something you can provide as security, typically for a secured loan or secured credit card. If you can’t make payments, the lender or credit card issuer can take your collateral. Providing collateral may help you secure a loan or credit card if you don’t qualify based on your creditworthiness.