Four Basic Types of Credit

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When people think about credit, they generally only think about loans. However there are four basic types of credit you should know about. These include service credit, loans, installment credit and credit cards.

Service loans are those associated with services like electric, cable, water, gas, telephone and the like. For some of these you have to pay a deposit, especially if you have bad credit. Having good credit can sometimes eliminate the deposit completely because the companies lending the service have confidence in your ability to pay.

Loans are types of credit that lend us cash. The loans can be for small things or little things. Loans can be secured or unsecured. Secured means you put up some collateral to support the loan if you default. Most times these types of loans are given through banks.

Installment loans are types of credit that means you pay for something over time. You usually agree to make a down payment and sign a contract as to the amount you will pay each month. Payments are usually equal for the months during the term of the loan, which can vary. The item that you purchase is the security behind the loan. If you default, the item that you purchase is by default the lenders.

Credit cards are on of the most popular and most convenient types of credit. They are given by various types of businesses and are usually backed by a bank. You may have credit cards from retail stores, banks, or other businesses such as a gasoline company.

Whichever type of credit you use, the main thing to remember is that each has its drawbacks and benefits. You should use all of them wisely and make your payments on time to avoid any negative consequences.

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Source by Robert Livingston