Not every type of debt is treated equally regarding your credit score. Many credit accounts can be used, such as student loans, credit cards, and mortgages. However, did you know that all of these can be classified into three different types of credit? Lenders can determine if you can manage your finances responsibly by looking at the evidence of every kind of debt in your report.
Having a good mix of credit can help boost your credit score. However, it’s important to note that each type of credit account has its own rules and regulations. With that in mind, here are the different types of credit available. There are various types of credit +available, such as revolving, secured, and unsecured credit. Each of these is based on how debt is secured and paid back.
A secured credit product is a type of loan secured by the collateral it provides. For instance, this type of loan can be used to make payments if you have a house or car. However, if you don’t make the required payments, the lender can seize the property or even foreclose on it. Usually, these types of loans are arranged through an installment arrangement, which means that the lender makes a lump sum payment and then pays the borrower back in predetermined installments.
Unsecured credit is a type of loan that doesn’t require the collateral secured credit requires. Some examples of these include student loans and credit cards. Although experts generally prefer to separate secured and unsecured credit, some think that credit cards should be placed under a separate category. They claim that there are varying types of credit cards and that they should be treated differently.
Credit cards typically allow you to pay off your debt in full or with a minimum payment. However, they can also require you to make a monthly payment.
A line of credit, also known as a cap credit, is a type of loan that can be used until the end of the term without having to make a fixed payment. For instance, if you have a credit card with a cap limit, you can keep using it until the end of the term. A similar type of loan is known as a home equity line of credit or a HELOC.