Nowadays there are many different types of consumer credit that are available from banks and financial institutions. Some loan agreements require you to pay off the balance in full every month; others allow you to carry the debt from month to month. Some loans may require you to deposit a specified amount of money on a saving account to guarantee repayment of the loan. That's why it is important to educate yourself on the types of credit. You will be able to choose the best offer that suits your lifestyle and spending pattern.

Since each consumer's financial needs are different, it makes sense that there are different types of credit. It can be divided into three main categories: revolving credit, charge cards and installment credit. Installment credit is a widespread and easily understood type of credit. It includes car loans and mortgages. A credit company lends you a specified amount of money and you pay off the balance at regular intervals over a set period of time until it is paid in full.

Credit cards are a perfect example of revolving or open-end credit. It means that once you have been approved, you will get a specified credit limit. Then you are free to make charges as long as you stay within the preset credit limit. You will be able to pay off your balance in full every month or make regular payments which will include interest charges.

As you reduce your balance, you will have more available credit to use. For example, you had a credit limit of $500, and then spent $100. Your available credit is $400. If you repay the outstanding $100, then your available credit will be $500 again.

Revolving credit accounts can be secured or unsecured. They can come with low interest rates, moderate fees, cash back or point rewards programs. MasterCard, Visa and Discover plastics are good examples of revolving credit cards. American Express also offers revolving credit cards but they are more well-known for their non-revolving charge cards. These plastics require you to pay off the entire balance in full each month. You will not be able to carry your debt from one billing cycle to the next. That's why a charge card doesn't have a periodic or annual percentage rate.

It is good to have at least 2 revolving accounts and 1 installment loan, for example a car loan, on your credit report. It will show that you can manage wisely different types of credit. Keep in mind that multiple late payments could negatively affect your credit score. Vice versa, regular on-time payments will play into your hands. You will boost your credit score and prove that you are a reliable and trustworthy customer.

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