When making buying decisions with no cash on hand, the transaction can occur under many different credit types. As usual, we keep it simple at The Mill. Let us learn.
Credit is a word that evolved from the 1520s, from the Middle French credit meaning “belief, trust,” from Italian credito, from Latin creditum “a loan, thing entrusted to another to trust, entrust, believe”. When speaking of credit, we speak in a legal sense, a commercial sense or an Academic sense. For the sake of understanding, we will speak in the commercial sense. Keep this in mind because it someone is speaking in a legal sense the word can take on a totally different sense. This is vital to remember.
In a commercial sense, there are 4 types of credit that can affect diverse types of credit scores. We will refer to the diverse types of credit as CRIS Charge, Revolving, Installment, and Service:
Note: A. CREDITOR is the person who gives you credit B. CREDITEE is the person who receives credit most of the time this is you. C. INSTALLMENTS which is simply repayments
There are four types of credit:
- CRIS………… We will begin with charge credit. An example of Charge Credit is charge cards. Charge cards often look like revolving credit cards and are used in the same way, What makes A charge cards different is that the CHARGE ACCOUNTS DIFFER IN THAT YOU MUST PAY THE TOTAL BALANCE EVERY MONTH. THE ENTIRE BALANCE FOR THE DUE MONTH BE PAID IN FULL.
- CRIS…… Revolving credit. With revolving credit, you receive a maximum credit limit by a creditor (The one who gives), and you can make charges up to that limit EXAMPLE: YOU CAN GET UP TO $500 IN CREDIT NO MORE UNDER THAT AGREEMENT. EACH MONTH, YOU CARRY A BALANCE (OR REVOLVE THE DEBT) OF $500 AND MAKE A PAYMENT. Most credit cards are a form of revolving credit.
- CRIS…… Installment credit. Installment credit allows a creditor loans you a specific amount of money, and you agree to repay the money and interest in regular installments of a fixed amount over a set period of time. Car loans and mortgages are two examples of installment credit. EXAMPLE: YOU GET CREDIT FOR $25,000 AND THE INTREST IS $500 YOU MUST PAY BACK $25,000 + $500 = $30,000. YOU MUST PAY SOME OF THE MONEY BACK EVERY MONTH FOR A CERTAIN NUMBER OF MONTHS UNTIL IT IS ALL PAID BACK.
- CRIS…… Service credit. Your agreements with service providers are all credit arrangements. EXAMPLE: YOU RECEIVE ELECTRICITY, CELLULAR PHONE SERVICE, GYM MEMBERSHIP, CABLE TV, ETC., WITH THE AGREEMENT THAT YOU WILL PAY FOR THEM EACH MONTH OR THE SERVICE WILL BE TURNED OFF AND YOU WILL HAVE BAD NEWS ON YOUR CREDIT SCORE. This is one of the biggest most common credit destroyers.
Remember everybody hates CRIS