Updated: May 7, 2021
Credit is the term being tossed around whenever you apply for loans and other financial responsibilities. Basically, credit is defined as an exchange wherein something of value is transferred in return for the promise of regular payment, often with interest.
And with most people, they often think about whether they have a good or bad credit to get the best rating available that suits their financial needs. Though credit is a relatively simple concept, it can be quite challenging in practice.
Credit helps run and guides us in our financial lives. It helps shape our decisions during purchases and our ability to buy a home. Besides that, it also impacts our ability to get car loans and impacts our employment qualifications.
Fortunately, some loaning companies keep this in mind and ensure that even when you've taken out a loan, you're also building strong credit. This means they have a transparent loaning system, eliminating all surprise fees and alike.
Because credit is necessary, here are the different types of credits, why they're essential, and what you need to know about credit score. Let's get to it!
Different Types of Credit
Revolving Credit: Revolving credit is one of the most popular types of credit that allows you to borrow money up to a certain limit. The loaner will set a credit limit based on your score and revolve the balance monthly until your debt is fully paid. Sometimes, as you're paying back the money, interest charges may occur. This type of credit is often used in credit cards like Visa and Mastercard.
Charge Cards: Unlike a credit card, a charge card doesn't carry any balance. Instead, you must pay in full each month. When you don't pay your balance on time and in full, you'll incur penalties. The great thing about charge cards is that they're incredibly convenient and are against accumulating credit card debt.
Installment Cards: With installment loans, the borrower loans you a set of money and gives you a time frame to repay the credit you borrowed. As for interest charges, these are pre-determined and calculated into set monthly payments. This type of credit is often used with a mortgage, auto, and personal loans.
Service Credit: On the other hand, service credit loans allow borrowers to pay for a service or membership later, which is often due monthly. When you have an unpaid balance, you may end up paying a fee, interest, and other charges. This type of credit is often found in phone, gas, electricity, and water bills.
Why You Need Credit
Since we're living in a credit-driven society, credit is necessary because some people often don't have immediate cash available to make a huge purchase. Although we dream about stepping into a car dealership with a bag full of cash, that fantasy isn't a reality for many of us. That's why it's important to have credit so we can buy and pay for anything we want, as long as we repay our loaner in full by the deadline.
Determining Your Credit Score
Your credit report calculates your credit score based on the amount of money you borrow and how you pay back your debts. With this, loaners will be able to know if you're able to get a loan and repay them on time, even with added interest. Besides that, it also determines whether you can get an apartment, insurance rate, and more.
This is why it's crucial to work with a loaning company that will secure you a loan while helping you maintain a good credit score.
The Bottom Line: Keep an Eye Out for Your Credit Score
Your ability to get a loan and make big purchases heavily relies on your credit score. That's why it's important to understand the different credit types you can have and how they can affect your decision-making process.
Credit is an incredibly convenient tool that guides you in being financially responsible. For this reason, it's best to work with companies who can help you get a loan and build your credit score.
How Can We Help You?
Many people have difficulty keeping their financial health in check and securing loans. Thankfully, When Ends Don't Meet can help you with this problem.
When Ends Don't Meet has partnered with 19 lenders in major communities to help deliver a personal service, adhering to our values of ethical lending practices, loan transparency, and personal service. We go beyond payday loans and offer affordable installment loans, giving you fast money to help you build your credit score.
Learn more about our services today!