There are essentially three types of accounts that are most commonly used. They include installment, revolving, and open 30-day.
Installment credit is one of the commonly used types of credit accounts. As stated above, installment credit is granted when a consumer signs a contract to repay a fixed amount in equal payments over a specific period of time. You will also hear this account referred to as “installment loan.”
For example, a car loan in the amount of $5,000 with a monthly payment of $228 for two years (24 months) is an installment loan.
Revolving credit accounts allow consumers the option of paying the debt off in full each month or paying the minimum payment as specified by the creditor.
A Visa® card, for example, is a type of revolving credit account. As you know, of your current balance is $500, you have the option to either pay the debt in full or make the minimum monthly payment.
NOTE: if you pay off the debt in full each month, you do not pay any interest charges. If however, you carry a balance forward, you pay interest on the remaining balance in addition to all future purchases.
Therefore, it is highly recommended that you pay the full balance each month. If you cannot, always pay more than the minimum due.
An open 30-Day credit account requires the consumer to repay the full balance owed each month.
A credit grantor well known for providing this type of account is American Express.
