Types of Credit

Credit is a financial tool that lets you obtain goods and services with the promise to pay for them in the future. Knowing the different types of credit is key to making informed decisions.

1. Revolving credit

This is a line of credit you can use, repay, and use again up to a preset limit. The most common examples are credit cards and personal lines of credit. They offer flexibility but tend to carry higher interest rates if you don't pay the full balance.

2. Installment credit

You receive a fixed amount that you repay in regular installments over a defined period. Examples: car loans, personal loans, and mortgages. The payments are predictable, which makes budgeting easier.

3. Open / service credit

These are arrangements where you use a service and pay later, such as electricity or phone bills. Although it's not always thought of as "credit," paying on time also shapes your financial reputation.

Use it strategically

Each type of credit has its place. The key is to use it responsibly: pay on time, don't exceed 30% of your available limit, and choose the right product for each need.