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When most people think of credit, they tend to think of those little cards in their wallets. Others think about their credit score.
If you’re new to the world of finance, you may be unaware of the different forms of credit available to you. Depending on your financial situation, you may need to take out loans for different reasons.
It’s good to know the different forms of credit and how they may apply to different loans you can obtain. In this article, we’ll explain the three types of credit, and why they are important.
What Are the Three Types of Credit?
The three types of credit are installment credit, revolving credit, and open credit. All are important to your overall credit score and financial standing.
Regardless of the type of credit, all types must follow determined a set of state and federal regulations that protect consumers. Let’s dive into each one more specifically.
Installment credit is credit that has a fixed payment. They may include mortgage loans, car loans, home equity loans, and so on.
When you enter into an installment credit loan, you agree with a banking entity to pay back a fixed amount of money over a determined amount of payments. For this, you also agree to pay back the money with interest applied.
Roughly 12 percent of American people have poor credit standing, which limits their ability to obtain loans. These people have a credit score below 550.
Nonetheless, there are options for people looking for loans to help with financial issues, and if payments are made successfully, can help boost your credit score. Click to learn more about no credit check loans.
Revolving credit is a credit that is offered to you with a spending limit. Most people have this type of credit in the form of credit cards, while others may have home equity lines of credit or personal lines of credit through a bank.
These forms of credit also come with interest, so it’s important to keep up with payments and pay more than the minimum to keep your revolving credit in check.
If you use up your credit limit, you are only left with payments until you have paid down enough to have credit to use.
According to reports from the Huffington Post, nearly one-third of all Americans has more credit card debt than they do savings. Nonetheless, revolving credit, if used correctly can be a powerful form of a credit to boost your credit score.
Open credit is paid back in the form of lump sums. This applies to such loans as charge cards or utility payments.
Charge cards are different from credit cards in that they offer credit to purchase goods or services, however, those payments must be paid back the following month. Not doing so, can include hefty payments, or even a closed account.
Similarly, utilities like water are often paid in quarterly installments, making them a form of credit. Depending on the amount of water used, you may owe more or less than the agreed-upon installment.
Use Credit to Your Advantage
Credit, if used correctly, can be a powerful tool for your financial health. Using charge cards to pay normal bills is one way to boost your credit score. Using all types of credit can also help bring up your score.
If you’re in need of cash and have bad credit, consider options like no credit check loans. They could be the key to boosting your credit score while helping you out of financial hardships.
If you’re looking for more information about credit and boosting your credit score, and other news, please check out our blog for more stories.