Most people are unaware that all credit and debt falls into three basic categories.  Pretty much every adult today has some kind of credit or debt they owe.  Understanding the various types of credit and debt is a first step to proper debt and credit management.

All credit and debt falls into three categories:  Single Payment, Installment and Revolving

Single payment credit is used quite frequently and easiest to understand.  This is when a service is provided and the recipient makes a one time single payment to cover the full amount.  Examples include some charge cards that require full payment each month, medical services, utility bills, apartment rent, and some retail business transactions.

Installment credit occurs when the recipient pays the entire bill in two or more regular payments at equal intervals(weekly, monthly, etc).  The payment amount is usually fixed and does not fluctuate.  Interest is usually charged and is included in the fixed payment amount.  Examples include car loans, appliance and furniture loans, personal consumer finance loans, credit union loans, and commercial bank loans.

Revolving credit is a type debt where regular payment intervals are agreed upon at the beginning and are usually monthly.  There is also a minimum amount that is expected to be paid at the regular interval based on the interest rate and size of the debt.  Interest is charged on the balance of the debt as the payments are made.  Many institutions use revolving credit and it can be used as long as the total amount owed does not exceed the borrower’s credit limit.  Examples include: bank credit cards, gas cards, and retail store credit  cards.

This entry was posted on Sunday, April 26th, 2009 at 5:08 pm and is filed under Credit Repair. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.