What Are The Four Types Of Credit?
Most credit is defined in a few different ways with one being the amount of money that you are approved for when you’re applying for financial products that an institution any other being your reputation for borrowing from other institutions. Credit paints the overall picture of your history of payments and it provides any lender with the information that they need to consider your eligibility for loan repayment. Your credit serves as your overall risk factor associated with the process of repaying with financial products. But what are the four types of credit?
Using Credit Products
When credit products are used in a responsible manner, credit can be an extremely convenient and highly effective financial tool. From the use of credit cards to accessing auto or home loans, credit is often a necessity for many people today to access the things that they need. Understanding the process of credit can be important to using it to your advantage and preventing a series of financial problems later on associated with debt.
The four main types of credit that you can access include:
This is a type of credit that will allow you to borrow money up to a certain amount from a credit product. A lending institution will set a critical limit or the total amount that you can borrow and with revolving credit, you need to see the amount that you can access on a month-to-month basis. As you pay the money back, the difference between the maximum amount of credit and the balance of your credit changes. This is the type of credit that is most common with bank overdraft, credit cards, and more. Sometimes it comes with collaterals but in most cases, if you have good credit there’s no need for collateral to access a revolving credit system.
A charge card is different from the idea of a revolving credit card. Charge cards must be paid in full each month whereas with a credit card you are able to carry a balance between your monthly balances. Some of the most popular companies that use charge cards include American Express and this is a form of advantageous solutions in credit for people that have a tendency to accumulate debt.
Installment credit involves having a set monthly payment and a set amount that’s going to be borrowed. There’s an ongoing timeframe for the repayment and interest charges can be put into a predetermined state. Installment credit has the interest rate calculated in set monthly payments and most commonly there is an installment of credit agreements for your repayment plan. Installment credit is fairly common in items like auto loans, putting items on layaway as well as in-home mortgages.
With most types of installment credit products, there is some form of security put into place. What this usually means is that the borrower needs to provide some form of collateral and in the path of items like a car loan this usually means that the vehicle will be repossessed if the borrower is unable to make payments on their loans.
Not Instalment Credit
This type of creditor allows the borrower to pay for some form of service or membership at a later date. This type of non-installment payment usually means paying for the previous month of service at the end of the next month. Nonpayment can result in cancellations, late fees, and the chance to damage your credit rating for the future. Some of the most common forms of credit that followed this model include your cell phone, electricity bill, water bill, and more.
Consider these types of credit and how your future can be affected by each, and contact us to get started.