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Three Common Types of Credit

  • Revolving Credit

    Allows you to have a line of credit to make purchases with as long as you stay within your credit limit and pay your balance off on time. You may use this type of credit again and again, as long as you stay within the credit limit or until you close the account. Credit cards are the most common example of revolving credit.

  • Installment Credit

    This credit is borrowed in a lump sum and then repaid in fixed monthly installments over a set period until paid in full. Examples of installment credit include car loans, mortgages, student loans, and personal loans.

  • Open Credit

    Provides access to a certain amount of credit that needs to be paid in full at the end of each period, usually monthly. Because the balance must be paid off by the due date, this credit rarely appears on credit reports and doesn’t accrue interest charges. If the balance is not paid in entirety, however, there can be late fees, other penalties, and derogatory remarks on credit reports. Examples of open credit are utility bills and charge cards.

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Frequently Asked Questions

Last Modified on 02/04/25