Which statement best describes unsecured credit?

• A. Credit backed by collateral.
• B. Credit issued without a credit check.
• C. Credit not backed by collateral.
• D. Credit that requires co-signer.

Answer: (C)

Unsecured credit is defined by the fact that it is not backed by collateral. This means there’s no specific asset pledged to guarantee repayment, so lenders rely on the borrower’s creditworthiness and promise to pay. Because there’s no asset to seize if payments stop, unsecured loans often carry higher interest rates and stricter approval criteria.

The other statements don’t fit as definitions of unsecured credit. Credit backed by collateral is secured credit, which uses an asset as security. Saying unsecured credit is issued without a credit check isn’t accurate—lenders typically evaluate credit history for unsecured loans. Requiring a co-signer can be used to obtain unsecured credit, but it isn’t what makes a loan unsecured.