Thursday, January 3, 2019

Credit 101: Everything You Need To Know

When we hear the word credit we often automatically think about taking out a credit card and paying it back over a certain amount of time. Credit is a word which is any amount of money which has been borrowed and you have to pay back. This is something we all use at some point in our lives and it is something which all adults should know about. Here are the four different types of credit.

Revolving credit

The first type of credit is revolving credit and this is used to describe the credit which you take out up to a maximum limit. You are allowed to make charges anywhere up to this limit but no further. This is often what is used for credit cards and will be the type of credit you are most familiar with. At the end of each month you will pay some money back and then the credit will reset.

Charge cards

Charge cards work in a very similar way to revolving credit and a lot of people mistake them for one and the same. They are basically the same however with a charge card you have to pay back the full amount of money you owe at the end of the month, whereas this isn’t the case with revolving credit.

Service credit

Service credit is a type of credit which you will likely currently have several of. Any agreement you have made with your phone company, gym membership or electricity bills is known as service credit. This is an arrangement you make with a service provider for regular payments in return for a service. It is a type of credit which will sometimes but not always take your credit score into account.

Installment credit

Anything like mortgages and car loans come under this category and this is where you pay back small installments of a large loan over a few years or decades. It is important here that you check with a company such as Credit Sesame that your credit score is good enough because you could well be denied a loan otherwise.

Credit score 

Your credit score is a number which indicates to a lender the likelihood of you paying back a loan or being late on your payments. It is a score which will be always used for larger purchases like houses and cars and sometimes for others like phone contracts. It is a way of telling the lender whether you are trustworthy and it protects them against losing their investment.

To have a good credit score you need to have a good track record with money. This can be anything from avoiding debt in your life to making sure you pay your debts off quickly when you do have them. One of the things you will want to ensure when maintaining your credit score is that you always pay things back on time and try not to live beyond your means. Avoid taking out loans if you can and your credit score should stay high enough that you will never have an issue taking out a loan.

1 comment on "Credit 101: Everything You Need To Know"
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