The 7 Types of Credit – Why Knowing Them May Help Your Credit Score

You may be familiar with the importance of having credit cards, loans and a mortgage to improve your credit score, but that's not the only types of credit available.

Many people are concentrating on their credit score so closely that they can sometimes forget about other types of credit. These three are certainly the most common and perhaps the most important, so it’s no fool’s errand to dedicate energy into building a good credit history amongst these channels.

Read on to find out what these main types of credit mean and what others are available.

Credit Cards

Credit cards are the most accessible type of credit and there are millions of Americans currently using credit cards. You are allotted a limit or balance on the card, allowing you to spend up to that amount and make monthly repayments to spread the cost of large purchases. Credit cards typically have high interest rates but can be good options with the right introductory discounts and offers.

Bank Loans & Overdrafts

Bank loans consist of money lent to the consumer from their bank, paid back on a monthly basis. Most bank loans offer honeymoon periods, allowing consumers to begin repayments some months after initially receiving the lump sum. Bank loans are generally the favored way to borrow large amounts. Overdrafts are a similar arrangement, but instead of being gifted a lump sum payment; consumers are afforded extra space in their bank accounts to go “below” zero to a certain limit. These also require monthly repayments and may expire after a certain time period.


Another variant of the bank loan, a mortgage is a large sum of money lent to consumers in the aid of purchasing property. Mortgages are generally secured against the property being purchased and are spread out across monthly repayments over a significant period of time, normally around 20 to 40 years.

Non-Revolving Credit

Non-revolving credit refers to installment types of credit, based upon fixed monthly amounts. Mortgages are a good example of this, as are bank loans, auto loans and student loans.

Revolving Credit

Revolving credit involves a similar arrangement to non-revolving credit, though the monthly payments can change in reference to the changing balance owed. Credit cards and store cards are forms of revolving credit.

Secured Credit

Secured credit is the definition given to credit which has been secured by assets. Mortgages are examples of secured credit, which normally list the property as collateral whilst auto loans can also be secured by the automobile itself or another asset such as the consumer’s home. Unsecured credit is the opposite, credit which has not been secured against anything; examples being credit cards.

Short Term Loan

Short term loans, sometimes called temporary credit, is a time sensitive variety of credit normally secured against the consumer’s income. Pay-day loans are the most recognized example of this loan, widely criticized for their incredibly high interest rates and tendency to do consumers more harm than good with costly repayments and tight tolerances on time frame.

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