Different Types of Credit You Can Have

Different Types of Credit You Can Have

Credit is available for borrowers in 3 main categories:

Revolving credit: These are credit lines with a monthly credit limit. It gets renewed as soon as you clear the previous dues. A borrower is allowed to utilize as much of the credit limit as per requirement in one go or in multiple transactions. It includes credit cards & home equity lines of credit, not very common in India.

Installment credit: These lines of credit have a set installment to be paid across a predetermined time period. The loan payments are listed in an amortization schedule. As the borrower goes on to pay the installments one-by-one, it keeps reducing from the amortization schedule in the loan agreement. This line of credit includes student loans, home loans, auto loans, mortgages, etc.

Open credit: A credit line that is preferred by a few. Open credit lets the borrower use a fixed amount which should be paid back in full every month it is used. This type of credit is usually associated with charge cards, and not credit cards.

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