Collateral
An asset pledged to secure a loan. If the borrower defaults, the lender can seize and sell the collateral to recover the unpaid debt. A house is collateral for a mortgage; a vehicle is collateral for an auto loan. Secured loans typically have lower interest rates because of this protection.
Related guides
- Full credit & FICO® glossary
Browse all defined terms by category.
- Secured Debt
Debt backed by collateral — an asset the lender can take if you default. Mortgages (collateral: home) and auto loans (collateral: vehicle) are secured debts. Because the lender has recourse to the collateral, secured loans typically have lower interest rates than unsecured debt.
- Mortgage
A loan used to purchase or refinance real estate, where the property serves as collateral. Mortgages are installment loans with terms typically ranging from 10 to 30 years. Missing mortgage payments can lead to foreclosure. Minimum credit scores vary by loan type (FHA: 500, conventional: 620).
Frequently Asked Questions About Collateral
What does Collateral mean?
An asset pledged to secure a loan. If the borrower defaults, the lender can seize and sell the collateral to recover the unpaid debt. A house is collateral for a mortgage; a vehicle is collateral for an auto loan. Secured loans typically have lower interest rates because of this protection.
Is Collateral important for my FICO® score?
Understanding Collateral helps you manage your credit profile more effectively, which in turn supports a stronger FICO® score.