Different Types of Credit
It's important to be aware of the different types of credit so you can choose the right one for your needs.
- Revolving credit.
- Installment credit.
- Open credit.
Revolving credit
Revolving credit is paid off in varying amounts. An example would be choosing to pay either the minimum amount on your credit card statement or paying the balance in full.
This type of credit requires you to pay at least the minimum amount due on your outstanding account balance each month. The minimum payment will be a percentage of your credit card's total balance.
The interest rates associated with open-end credit can be quite high especially if you have a poor credit history. Examples of open-ended credit include MasterCard, Visa and retail store credit cards.
Installment credit
Installment credit requires you to pay back a fixed amount within a specified period of time. Car payments are a good example of installment credit.
Open credit
Open credit is money due at the end of a specified time period. Student loans fall into this category. In Ontario, the repayment of student loans is subject to interest, if not paid in full, within six months after graduation or immediately upon leaving school.
