Many factors determine credit scores. Here’s what can bite into yours.
What is a creditor?
A creditor refers to someone who extends credit to another person or lends them money with the intention that the borrower, also called the debtor, will pay it back at some point. There are two types of creditors: personal and real. Most creditors are real creditors because they have no personal relationship to the borrower and have a legal contract with the borrower for repayment of the money.
In many cases, a creditor is a bank or other financial institution, such as a credit union. Vendors and suppliers also can be creditors if they allow customers to buy things on credit. Creditors can be either secured or unsecured creditors, depending on the nature of the loan or credit extended to the borrower.
Most debt is unsecured, meaning that the creditor does not have a lien or claim to any of the debtor’s property; the creditor can’t seize it to pay the debt without the court’s permission. Credit cards are an example of an unsecured creditor.
Secured debt is backed by collateral, such as a home (mortgage loan), vehicle (car loan) or any property that the debtor is purchasing with funds from the lender. If the debtor receives a mortgage or vehicle loan from a bank, the bank is a secured creditor. The bank will place a lien on the property, and it can repossess the property if the debtor doesn’t make the payments. A secured creditor has a legal right to that property.
Creditors typically charge borrowers for the privilege of getting a loan or credit. Many creditors charge interest rates on the loans they offer. Interest rates vary based on the amount of the loan, the borrower’s financial situation, credit status and other factors.
Are you concerned about your existing loans? When creditors call, have a script.
If you have two credit cards, one mortgage and one car loan, you have four creditors. Each credit card issuer is a creditor, as is the bank that has your mortgage and the lender from which you are obtaining money to buy the vehicle. The debtor will have separate agreements and contracts with each. Each creditor can sue for nonpayment.