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6 Credit Misconceptions: Secured vs. Unsecured Credit

In this video we debunk six common misconceptions about secured and unsecured types of credit so you can better understand your credit and debts.

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Misconception #1: secured credit is better because it’s protected.

The Truth: that protection is for the lender not the borrower secured credit is credit that has collateral this protection isn’t for the borrower it’s for the financial institution in case you default.

Misconception #2: there is no difference in the risk between secured and unsecured.

The Truth: secured credit carries a slightly higher risk because if you fail to pay your collateral can be taken to recoup the losses the company or financial institution holding the debt limits the risk of default with collateral.

Misconception #3: property can be repossessed to pay a debt even if it’s unsecured.

The Truth: if a debt is unsecured property can only be taken with a court order sometimes borrowers get nervous when they haven’t made payments on an unsecured debt because they think their possessions can be taken away or that the police will be called not true if a debt is unsecured the only way property can be taken is if a judge orders the liquidation in civil court so don’t let debt collectors scare you they cannot come and take your property they have to sue you first.

Misconception #4: secured credit only refers to special types of loans.

The Truth: secured credit cards can be a good stepping stone to unsecured as long as you can manage the debt when you think about secured credit your thoughts may be about home and auto loans but it can also refer to secured credit cards if you don’t qualify for an unsecured credit card because your credit score is low secured credit cards can be a smart way to build credit.

Misconception #5: credit lines can only be secured with tangible property.

The Truth: tangible property doesn’t just refer to a possession like a car or it can also include cash that you put down as a deposit cash is the most common type of collateral used with secured credit cards.

Misconception #6: you’re 100% certain to lose all collateral attached to secured debts during bankruptcy.

The Truth: certain property may be protected when you file for bankruptcy and can even be kept people often believe that you are guaranteed to lose collateral during bankruptcy but when you file for bankruptcy an automatic stay is placed on your repossessions or foreclosure actions and with chapter 7 bankruptcy where your assets are liquidated even a home or car up to a certain value can be saved as long as you’re current with those payments.