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Secured Debt vs Unsecured Debt, Which Should You Have?

Money coming out of a wallet, because we have to pay debt.
Knowing which debt is working for you, is the key to having a good credit score.

I hear the terms secured and unsecured debt all the time and often wonder what’s the real difference.

Is one better than the other, and if so, which one do I need to have? I also wondered, which is best for my credit score?

Whenever I get this curious bug, I have to do the research, and from there I have to put a plan in action. I have to plan to make sure that I am doing everything possible to keep my credit score growing.

I’m trying to get to the 800’s, people. That’s just my personal goal, I have to keep reaching for the top, right? Any who……..Let me share what I’ve learned!

Secured Debt

Secured debt is borrowing with collateral. You have to have something of value the lender can take away, in case you default on the loan.

Most loans nowadays are secured loans. For example, your mortgage is a secured loan.

Now, you might be thinking, I had nothing of value when I purchased my home, they saw my credit score and credit history and that’s what helped me get the loan.

While this is true, you also had collateral. The moment they approved you for the loan, you had thousands of dollars worth of collateral.

Lady smiling and paying her bill with her credit card.
Secured debt tend to have a lower interest.

If you default on your mortgage, the lender can take your home. Collateral!

But, why are these loans so common? Well, thanks to counterparty risk secured loans are popular and lenders have no qualms about using them.

What is counterparty risk? This is a term that means “the risk of default on the loan debt. In other words, because you have more to lose than they do if you default, the likelihood of you defaulting is little to none.

Think about it, most people that purchase a home will try everything in their power to keep their home. Everyone needs shelter, so paying your mortgage, like paying rent, is the utmost priority in your life.

If not, you could lose your home, you need a home. The mortgage company doesn’t!

Because the collateral is of high value to the consumer, lenders can offer these loans at a lower interest rate.

Another thing to keep in mind, when it comes to secured debt, is it has to be insured by the borrower.

This gives the lender some type of guarantee the item will be maintained and keep its value.

So what are some other examples of secured debt?

Examples of Secured Debt

​Secured Debt


​Car Note

The Vehicle

Federal Student Loans

The Government

Mortgage Loan

​The Home

Secured Credit Card

The Deposit

​Small Business Loan

​Car, Home, Business

Unsecured Debt

Unsecured debt is given without collateral. This means greater risk to the lender and therefore greater risk and high interest rate for you.

These are the loans that you have that were given to you because of your credit score or credit history.

These are also the loans that can quickly be turned over to collections if you default on them.

Most credit cards are unsecured debt, because you don’t have to put up collateral to get them. They are solely based on your credit history and the interest rates are usually high.

Man sitting on the couch, frustrated by a bad decision he has made about his credit.
Being in debt can be frustrating, but knowing which debt is affecting your credit can help you make smart decisions.

These are the debts that are usually sent to collections or can get you sued if you default on them. They could even come after your retirement!

Another thing to keep in mind, some secured debt can become unsecured debt.

Examples of Unsecured Debt

​Old Bills

Current Bills

Utility bills

Credit card

Medical bills

Personal Loans

​Student loans

​Unsecured Business loans

Child Support

​Cell Phone Bills

​Rent and lease payments

​Tax debt

Which is better to have?

This is a really hard question to gauge because most of the credit we get, at least when we're starting out, is secured debt.

Lady with a pleasant smile, thinking about how having a mixture of credit is not a bad thing.
Having a mixture of secured and unsecured debt, can play a positive role in building a well rounded credit report.

Therefore, there is nothing wrong with having secured debt. However, like with any debt, we never want to go overboard and develop bad habits when it comes to debt.

In the case of secured debt, remember, you have more to lose than they do because you have put up the collateral for the loan.

Unsecured debt does prove that you are a responsible consumer, because it is given to you solely based on your credit score and history.

Which is better for my credit score?

Think about this, 10% of your credit score factor is types of credit. So, honestly, it will not hurt to have both types on your credit report.

Of course, unsecured means that you have a good credit score and credit history, so the more unsecured credit you have the better This will come over time.

Now!………. Don’t think you have to stress yourself about this. If you’re just starting to build your credit or have bad credit, you have a secured credit card.

Little girl doing the happy dance.
Mixing up your debt takes time. But when you do, you will see a change in your credit score.

But remember, soon enough they’ll offer you an unsecured credit card. Hang in there, make your payments and keep your balance low. No worries!

Before you know it, with a little time and patience, you’ll have a nice mixture of both!

This is what you want to have a healthy credit score!

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