Understanding Credit Types

The credit score is of paramount importance to any consumer in the United States that they devote much time monitoring and fixing it. Doing so deprives them the chance to discover opportunities and taking advantage of them. The credit, which is a major reason why a credit score is very important, can come in different types.

Yes, a credit score needs to be good and be kept that way (if not to improve it more) in order to qualify for a loan, whether mortgage or credit cards. But besides these, there are other credit types offered by creditors and all are of equal importance.

Credit Cards

The most common and the easiest to have an access to are the credit cards. In the United States of America alone, there are hundred different kinds, and more than millions who use them every day for their transactions. They are safe to carry and convenient to use.

Credit cards vary on one important aspect—the credit limit. The credit limit allows you to spend on a credit at a specific amount. The monthly dues depend on how much you have used in your credit. But while they come very handy, they charge very high interest rates, though a little lower for introductory.

Overdrafts and Bank Loans

Bank loans are self-explanatory. But what you need to know about them are the honeymoon periods for repayments. This is the period given to the borrower after a loan has been released.

Overdrafts on the other hand, offer the same arrangement; only that, rather than giving you the money in lump sum, you are given more space on your bank accounts to drop below the zero point, on some limits. Like the bank loan, overdrafts require monthly payments.

Mortgages

Mortgages are loans provided for acquisition of property, real or personal. The property is used as collateral to secure payment until the end. They are usually paid between 20 and 40 years.

Non-Revolving Credit

This is the instalment type, and based on fixed amounts each month. Some good examples are the mortgage, student and auto loans, and bank loans.

Revolving Credit

Similar to the non-revolving, the revolving credit has a different amount of monthly dues depending on how much balance is left. The common examples are store and credit cards.

Secured Credit

These are loans secured by something. A good example is a mortgage. An auto loan is secured by the vehicle. Any other property of high value like your home may be used to secure a loan.

Its opposite is the unsecured—a loan without any security. Again, the credit cards make the perfect example. Once approved and been issued with one, you do not have to give anything as collateral.

Short Term Loan

Commonly known as temporary credit, the short-term loan is time-sensitive and secured against your salary. Payday loans make a good example. Though quick, they have higher interest rates and are known to have done more harm to consumers because of expensive payments and tolerance on paying time.