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How Credit Cards WorkThere are essentially two kinds of consumer credit available to you: secured and unsecured. Secured credit is attached to some sort of collateral. For instance, when you take out a loan to buy a house, the house itself is collateral. The same goes for buying a car, a boat, a motor home, a trailer or a personal watercraft. In the event that you stop paying back the money you owe, the secured lender can repossess your car or foreclose on your house. In other words, the company can take possession of the collateral; and that gives the lender some confidence in extending you credit. Unsecured credit is different. In this case, there is no collateral. The lender has to take a much greater risk in assuming that you will pay back the money you owe. Examples of unsecured credit include:
Unsecured debt can also include such things as medical bills, legal bills, cellular telephone bills, bounced checks and health club memberships.
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