Individuals who are going through the decision-making process of whether or not to apply for credit need to consider several things. First, what is the purpose for seeking credit, it is to further a financial goal or will doing so hamper achieving their goals. Once they have made this determination, they will need to decide what the appropriate credit product is for their intended purpose.
When you begin to think of consumer credit as a product you will then realize that there is a marketplace to shop for this commodity. There are many choices for individuals to obtain consumer credit. The following looks are several of the options.
Commercial Banks are publicly traded for-profit corporations charter by the state or federal government. They traditionally catered to commercial customers but now are working with consumers.
Savings & Loans can either be for-profit corporations or mutual organizations owned by the depositors. They work with individuals in local communities.
Credit Unions are non-profit financial cooperatives that operate for the benefit of their members.
Internet Banks are virtual banks that exist only on the internet and offer the same services as traditional banks.
Peer-to-Peer Lending (P2P) are internet companies which facilitate loans between unrelated borrowers and lenders.
Consumer Finance Companies are for-profit companies that offer consumer loans to individuals.
Payday Lenders are for-profit businesses, such as cash checking shops, which will make short-term high interest rate loans to individuals.
Pawn Shops are for-profit business, which are considered by the government to by non-bank financial institutions. They will make short-term collateralized loans.
Buy-Here-Pay-Here is a form of automobile loan financing where you purchase a car and make your payments directly to the car dealership.
Qualifying for Credit
Once an individual has made the decision to seek credit there are certain rights and protections, they have during the credit application process. The Equal Credit Opportunity Act (ECOA), prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because an individual receives public assistance.
There are factors that a creditor can take into consideration when deciding whether or not to extend credit. The following reviews the classic five C’s of credit: credit score, capacity, character, collateral and condition. It’s important for individuals to understand these terms and how they can impact their ability qualifying for consumer credit.