When individuals are trying to establish or improve their credit, they may not be aware of all of the different types of credit available to them. There are three different types of credit, and to achieve the highest credit score possible, consumers need to have the proper mix on their credit repair. Here’s more information about them and what they’re used for.
This type of credit generally doesn’t appear on a consumer’s credit report. Open credit mainly consists of utility bills like cable, electric, gas, or water. However, if a consumer doesn’t pay these bills, it may end up on their credit report if their debt gets sold to a debt collection agency.
Credit cards are the most common type of revolving credit accounts. They consist of a credit limit that the consumer can borrow against. Most credit cards don’t require that the individual has to pay the total amount back quickly as they usually only have to make a minimum payment each month that’s just a fraction of the balance.
However, it’s not uncommon for a lot of credit cards to also have a high-interest rate. This means that it can be challenging to pay off the balance if the consumer just makes the minimum payment every month. In addition to credit cards, a home equity line of credit is also considered to be revolving credit. Like credit cards, they can be paid back slowly as well.
This type of credit often involves a large sum of money for an asset or educational purposes that can be paid back over time. Installment loans include auto loans, student loans, and mortgages. It can take years for an individual to pay off an installment loan. However, this can have a significant impact on their credit score if they always pay these loans on time. Many individuals do have more than one installment loan on their credit report.
Consumers need to know the different types of credit available and how they are used. This will help them make intelligent decisions regarding their credit and borrowing money.