An unsecured loan is any credit arrangement you have that is not backed by personal property. For example, a credit card is an unsecured loan. A bank agrees to allow you to borrow a certain amount of money based solely on your promise to repay the money plus interest. If you can't pay your mortgage the bank takes your house. If you can't pay your auto loan, the bank repossesses the car. If you break the agreement you have with your credit card company, the bank has nothing to lay claim to—except your reputation, of course. That's where your credit score comes into play.
Credit card companies can and do report both on-time and late payments to the credit reporting agencies. The next time you go to apply for a loan or credit card, the lender will pull your credit report to determine if you are a good risk. That's why it is always important to pay your bills on time and according to the terms of your agreement.
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