Knowing the three different types of credit can help consumers who need to reestablish themselves
What Is The Difference Between Types of Credit?
Here at Auto Credit Express we know exactly what type of credit an auto loan is: it's a form of installment credit secured by a vehicle. But it's also important that people shopping auto loans with bad credit understand the other two, as well as why it's important that they establish them as well.
So here goes:
Revolving Credit: When you're approved for a revolving credit account, the creditor sets a dollar amount limit on the amount you can borrow. This is called your credit limit and you can borrow up to that limit at any time. And while you're free to pay the entire balance you owe at any time, you must pay the minimum amount due on the outstanding balance each month. A credit card is the most common type of revolving credit, but a home equity line of credit is also considered to be a type of revolving credit.
Installment Credit: When you're approved for an installment credit loan, you sign a contract to borrow a certain amount of money for a set period of time. The contract will also state the amount as well as the number of fixed (installment) payments you need to make. The most common type of installment credit is a car loan. Other examples include student loans as well as home mortgages.
Non-installment Credit: When you're approved for a non-installment credit, the lump sum is due all at once instead of installments and is usually short term. It also comes in one of two types:
- Unsecured Credit: When a line of credit is unsecured, there is no real property (such as a car) that is tied to the loan. Put another way, you are giving your word to the lender that you will repay what you borrow. Examples of unsecured credit include credit cards and utility bills.
- Secured Credit: A loan is secured if the loan document places a lien on one of your assets. This lien entitles the creditor to take the asset if you don't live up to the terms of the loan agreement. Examples of secured credit include mortgages, car loans, secured credit cards and home equity loans.
Consumers that have experience credit issues in the past often need to reestablish both revolving credit and installment credit. The easiest way to reestablish revolving credit is by applying for either a secured credit card (one that can be converted to a regular credit card later on) or regular credit card.
The easiest way for most consumers to reestablish installment credit is by applying for a subprime auto loan.
The Bottom Line
It's not only important that consumers not only understand the different types of credit, but also the ways in which they can reestablish credit if they've experienced problems with any type in the past.
One more tip: If you need to buy a car and think that your only option is a "buy here pay here" dealer, we want you to know that Auto Credit Express matches people with credit difficulties to select new car dealers that can offer them their best opportunities for car loan approvals.
So if you're ready, you can begin now by filling out our online car loan application.