What are the 4 Most Common Different Types of Credit?
You know that credit is important. Credit is part of your financial power, enabling you to get things you need in life in a short amount of time (such as getting a loan for a new card or obtaining a credit card). But with all of the terms out there, it can be confusing. What are the most common types of credit and how do you use them?
4 Types of Credit
There are a number of types of credit but the four most common types are installment loans, revolving credit, service credit and charge cards.
Installment loans are a specific amount of money that is loaned to you by a lender for a specific purchase. You are expected to make monthly payments according to a set installment schedule (such as each month). These may include auto loans, mortgage payments or student loans.
Revolving credit refers to a line of credit you can use over and over again after paying it off. You are given a maximum credit limit and you can make purchases up to that amount. You are expected to make a minimum payment each month on the purchases you made. If you cannot pay these balances in full, they carry over (or revolve) to the next month and you often have to pay interest on top of your remaining balance. Credit cards are the most common types of this type of credit.
Service credit is typically applied to services or utilities (such as gas, water or electric usage in your home) that you pay at a later date. Cell phone bills are another example of this type of credit.
Charge cards are similar to credit cards. They are accounts with revolving credit and are often used in a similar way but they have one key difference: the balance on a charge card is to be paid in full every month rather than carrying over (or revolving).
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