Hello and welcome back to the TRIO Financial Literacy Blog. In the previous blog, we talked about what credit is. In this blog, we will cover different types of credit.
During my research, I came across two primary forms of credit — revolving credit and installment credit. Revolving credit usually is your credit card. It is credit that can be borrowed repeatedly but has a set limit — your credit limit — that you can borrow. Most likely you are in control of how much you borrow, and interest is charged if the balance is not paid by the due date. As you pay on time, the account stays open until you choose to close it. Another example of revolving credit is a home equity line of credit.
The second form of credit is installment credit. Installment credit is a loan that you borrow one amount and repay it with interest in accrues in installments each month. At the time it is paid back in full, then the account is closed. Typically this type includes mortgages, personal loans, auto loans, and student loans.
In recent years there has been another form of credit that has emerged, it called “open credit.” Open credit does not have a set amount to repay as it varies from month to month. Open credit includes utility bills, cable, and even cellular services.
All in all, credit gives you the option of purchasing items now instead of later. I want to remind you of what we learned in earlier blogs. The money you spend should make you more money. Credit is part of your financial power. It helps you get the things you need now, like a loan for a car or a credit card, based on your promise to pay later. Working to improve your credit helps ensure you’ll qualify for loans when you need them. The choice is yours on how you choose to spend your income but let’s remember to be smart about utilizing our funds. As always, let’s build!
Reference
Time. (2021, July 21). Understanding different types of credit | nextadvisor with Time. Time.
