What is Credit and the Types of Credit?

What is Credit and Types of Credit?

We live in a credit based society. Credit has become a convenient way to pay for things while using other people's money. It allows us to purchase items and services today, though we do not have to pay for them till a later time. Without credit in our lives it would be very hard to obtain the things we need and want. For example like cars, a house, electronic equipment, etc. Credit is really a promise for repayment on a debt. The promise is an agreement between you and the credit card company or lender that you are dealing with.

What are the different types of credit? There are 5 different types of credit that is available for consumers they are:

1. Revolving credit - Credit cards are considered revolving credit. They allow you to pay for all or part of your debt balance on a credit card you have with them. They are considered unsecured debt and require no collateral when purchasing items and services. When revolving credit is extended to you the credit card company or lender is trusting you to repay the debt you have with them. Issuing revolving credit can be very risky for the lender and usually carries a high interest rates.
2. Installment credit - This is used when purchasing automobiles, household appliances, furniture, etc. Installment credit is considered closed end credit because the borrower and the lender have outlined the specific amount of money needed each month to pay and time in which the loan will be paid off in full.
3. Open Charge Credit - This type of credit is usually issued from small retailers. It is an open end line of credit for 30 days. It is also referred to as 30 days same as cash. If you have this type of credit you can purchase a specific item sign a sales receipt and go home with that item the same day. At the end of the 30 days the retailer will send you a bill for this item. This bill is due and it must be paid in full at this time. There are NO payment terms available.
4. Service credit - This is issued by utility companies, in most cases you have already used the credit during the month for example the telephone, electric, gas and water bill. Service credit usually requires payment in full and is issued without finance charges, but you can receive late fees if payment is not made by the due date of the bill.
5. Mortgage credit - Banks, credit unions and other financial institutions issues this type of credit for the purchase of a home, condo or other real property. Mortgage credit is more complex than the other types of credit. Mortgage credit works like installment credit but credit approval is much harder to obtain. Mortgage credit could take a long time for approval, weeks sometimes months for it to go through.

FREE DEBT CONSOLIDATION QUOTE

Member in good standing with:

Click here to read about our alliances

Debt Consolidation / About Us / FREE Debt Relief Quote
Contact Us / Education / FAQ / NewsLetter / Privacy / Site Map

Copyright© 1991-2006 By Kimberly Credit. Kimberly Credit is a registered trademark of Kimberly Credit, Inc. Unauthorized use is strictly prohibited. The information set forth in this website shall serve as information purposes only and is filed  with the United States Copyright Office.

• Cut Payments up to 70%
• Make One Low Monthly Payment
• Fast one hour approval
• Elimination of past-due collection calls
• Account re-aging