C is for Credit

Purchasing power of people vary, therefore most of the time people cannot afford to buy everything they need— much less everything they want — without a little help.

What is Credit?

Credit is an agreement between a lending organization — be it a bank, a store, a credit card company, or others — and a borrower, namely you. That agreement puts money in your hand, in your bank, or on a credit card, for your use. The terms of repayment, including interest charges, are usually preset by the bank.

The various types of credit available to you depend on your financial situation, financial needs, and the lending partner you choose.

Three Types of Credit

Type 1: Personal Loans

Personal loans are a well-known, old-fashioned way to get money. They can make large items like cars and houses a reality. Loans come in a lump sum that must be paid back regularly by a specific date. The longer you take, the more interest you’ll pay — one of the basic rules of credit.

Type 2: Lines of Credit

A personal line of credit is similar to a loan — money borrowed for large purchases or expenses. Unlike a loan, it’s not a lump sum. Instead, it offers a specified amount of money available for your use. Interest is charged only when it’s used. Once you pay off the used portion the interest charges stop, and you can continue to access it.

Type 3: Credit Cards

Credit cards are the most popular and most flexible source of credit available. They are issued by banks and other financial institutions or through stores, gas stations, and various retail outlets. Before you sign up and start spending, learn the difference between a credit card and a charge card.