The basic type of credit most of
us are familiar with is to pay your debt down before saving. However, there are
other types of credit today, and they can be further divided into four types.
Revolving credit: The most common revolving credit is a credit card. A borrower is
given a certain credit line for consumption and is not expected to exceed the
credit line. Unlike ordinary loans, the borrower can continue to hold and use
the previously obtained credit line after repayment. For example, Jack is
approved for a credit card with a limit of $1,000. Unless the amount is
increased/decreased by his bank, Jack has a limit of $1,000 available as long
as he repays in time after consumption.
Charged card: Charged card is like a credit card, but you must pay off your
bills every month. You cannot carry the arrears to the next month, like using a
credit card. Another big difference from credit cards is that charged cards
generally do not have pre-set limits. However, it does not mean an unlimited
limit. The card issuer sets a floating limit regarding the user’s consumption
situation/asset status/credit history. Usually, the user does not know the
floating limit, while the credit card limit is relatively fixed and visible.
Service credit: Hydro bills, phone bills, and gym memberships are examples of
service credit. These merchants usually sign contracts with clients and offer a
service period. Clients have access to the merchant’s services/products during
the service period and pay the fees as agreed. Service credits rarely appear on
credit reports, but service credit defaults can affect credit records
negatively.
Installment payments: House loans and car loans are two typical types of installment
payments. The borrower obtains a loan at the site and agrees to repay the loan
in installments within a pre-determined period at a certain number of times and
intervals (e.g., 36 months). Installments usually require an additional amount
of interest, depending on the loan interest rate of the loan company. Also,
according to the types of contracts, the borrower may choose to pay in advance
to avoid paying interest.
If you are interested in learning more about how a credit bureau prepares your credit report, please follow the links below:
https://www.transunion.com/how-to-read-a-credit-report
https://www.transunion.com/how-to-read-a-credit-reporthttps://www.transunion.com/resources/transunion/doc/insights/reference-guides/TU-How-to-Read-Credit-Report-Quick-Reference-Guide.pdf
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