Skip Navigation
Edvisors Star Logo
Edvisors Logo
  • Compare Lenders
      • Compare Lenders
      • Best Private Student Loans in April 2023
      • Student Loan Comparison: Federal Loans vs Private Loans
      • Parent PLUS Loans vs Private Student Loans
      • How Does Interest on Student Loans Work?
      • Private Student Loan Cosigner: Everything you Need to Know
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

      • Compare Lenders
      • Best Student Loan Refinance Companies for April 2023
      • Federal Student Loan Repayment Plans
      • Student Loan Forgiveness: How to Get Student Loans Forgiven
      • Repayment Plans for Private Student Loans
      • Parent PLUS Loan Forgiveness
      • View All Articles >
      refinance student loans with college ave get started

      This is an advertisement.

    • Private Student Loans
    • Refinance Student Loans
  • Plan for College
      • Best Job Search Sites
      • Resumes That Get Noticed
      • High Paying Careers
      • STEM Careers
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Measuring Academic Fit: Reach, Match and Safety Schools
      • Need-Blind Admissions
      • How Long is a College Essay
      • When are College Applications Due
      • How to Write a Good College Essay
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Filing the FAFSA 2023-24: A Simple Guide for Students
      • FAFSA Deadlines for 2023-2024
      • FAFSA FAQ - Your FAFSA Questions Answered
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Most Popular Scholarships for College Students in 2023
      • Apply for Free Scholarships for College
      • College Scholarships for Kids
      • Most Prestigious Undergraduate Scholarships
      • Las mejores becas para estudiantes hispanos y latinos
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • How to Pay for College
      • Tuition Payment Plans
      • Pros and Cons: Borrowing From My 401K to Pay for College
      • Paying College Tuition with a Credit Card
      • Best Ways to Pay for College Without Financial Aid
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Financial Aid Disbursement: When and How You Will Get It
      • Should I Pay Off My Student Loans Right Now
      • How to Minimize Student Loan Debt
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

    • Careers
    • College Admissions
    • FAFSA
    • Scholarships
    • Paying for College
    • Student LIFE Blog
  • Student Loans
      • Filing the FAFSA 2023-24: A Simple Guide for Students
      • FAFSA FAQ - Your FAFSA Questions Answered
      • FAFSA Deadlines for 2023-2024
      • FAFSA School Codes
      • FAFSA 2023-2024 Guide & Resources
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

      • Best Private Student Loans in April 2023
      • Student Loan Comparison: Federal Loans vs Private Loans
      • Parent PLUS Loans vs Private Student Loans
      • How Does Interest on Student Loans Work?
      • Private Student Loan Cosigner: Everything you Need to Know
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

      • Filing the FAFSA 2023-24: A Simple Guide for Students
      • FAFSA FAQ - Your FAFSA Questions Answered
      • The complete guide to federal undergraduate student loans
      • What are Federal Parent PLUS Loans and How to Apply?
      • Financial Aid for Graduate School
      • Compare Subsidized and Unsubsidized Student Loans
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

      • Best Student Loan Refinance Companies for April 2023
      • Federal Student Loan Repayment Plans
      • Student Loan Forgiveness: How to Get Student Loans Forgiven
      • Repayment Plans for Private Student Loans
      • Should You Refinance Federal Student Loans?
      • Parent PLUS Loan Forgiveness
      • View All Articles >
      • Sallie Mae Student Loan Review
      • College Ave Student Loan Review
      • SoFi Student Loan Review
      • Ascent Student Loan Review
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

    • FAFSA
    • Private Student Loans
    • Federal Student Loans
    • Repay Student Loans
    • Lender Reviews
  • Credit Cards
      • Petal® 2 Visa® Credit Card Review
      • SoFi Credit Card Review
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Best Credit Cards for 2023
      • Best Cash Back Credit Cards
      • Best 0% Introductory APR Credit Cards
      • Best Secured Credit Cards for 2023
      • Best Balance Transfer Credit Cards
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • How to Build Credit?
      • What Age Can You Get a Credit Card?
      • What is a Secured Credit Card?
      • What is an Unsecured Credit Card?
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

    • Card Reviews
    • Best Credit Cards
    • Credit Card FAQs
  • Money Management
      • Best Budgeting Apps
      • Budgeting Tips
      • Budgeting for Beginners
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Financial Goals
      • How to Save Money as a College Student
      • What is an Emergency Fund
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • How to Pay Off Debt
      • Debt Relief
      • What is a Debt Management Plan
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • How to Check Your Credit Score
      • Best Credit Building Apps
      • What is Credit?
      Self Credit Builder: Build Credit. Build Savings. Build Dreams.

      Sponsored Ad

      • Investing for Beginners
      • Best Investment Apps
      • Understanding the Stock Market
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • What is Risk Management
      • How to Prevent Identity Theft
      • What is Insurance
      Info compromised in a breach? Don't compromise on identity theft protection.

      Sponsored Ad

    • Budgeting
    • Saving
    • Debt Management
    • Credit
    • Investing
    • Risk Management
Search Box Form
School Search Form
Advertisement Disclosure
Advertisement Disclosure
×

Edvisors (“Edvisors Network, Inc.”) provides independent advertising-supported platforms for consumers to search compare and apply for private student loans. Loan offers from participating lenders that appear on our websites are not affiliated with any college and/or universities, and there are no colleges and/or universities which endorse Edvisors’ products or services. Lender search results do not constitute an official college preferred lender list. Edvisors receives compensation from lenders that appear on this site. This compensation may impact the placement of where lenders appear on this site, for example, the order in which the lenders appear when included in a list. Not all lenders participate in our sites and lenders that do participate may not offer loans to every school.

Edvisors is not a lender and makes no representations or warranties about your eligibility for a particular loan or financial aid. Lenders are solely responsible for any and all credit decisions, loan approval and rates, terms and other costs of the loan offered and may vary based upon the lender you select. Please check with your school or lender directly for information related to your personal eligibility.

Edvisors has endeavored to provide accurate information. However, the results provided by lenders are for illustrative purposes only and accuracy is not guaranteed, as such, Edvisors assumes no responsibility for errors or omission in the information provided.

×
Get Your Free Guide to Filing the FAFSA Today!

Thank you for your interest in Edvisors' 2020-2021 Guide to Filing the FAFSA.

Please complete the form below to access your free copy.

Thank you! Click here to download your free FAFSA Guide.

I am a:

×
College knowledge starts here!

Enter your email below to receive your Student Loan Handbook from Edvisors.

Please check your email for the Student Loan Handbook.

After Navigation
Home Money Management Credit Types of Credit
  • Contents
  • What Is Credit?
  • Different Types of Credit 
  • How Different Types of Credit Affect Your Score
  • Why You Should Check Your Credit Scores
  • How to Build Credit
  • Use These Types of Credit Wisely

Types of Credit

ARindfleisch
By Ainsley Rindfleisch
November 22, 2022
Email This Article
Fill out the form below to send a copy of this article to your email.
By clicking "Submit" I have read and agree to the Edvisors' Terms of Use and Privacy Policy. We strongly encourage you to read our Privacy Policy to understand how we use and share your information.
A copy of this article has been sent to your email.

The word "credit" is one that you may be familiar with but not fully understand. A lack of knowledge regarding credit can cause you to make bad choices that are costly and could harm you financially for years to come. As a college student, now is the time for you to learn what credit is and the different types of credit accounts that are available so you can make wise financial decisions.

What Is Credit?

There are some things you can only buy or receive if you have some form of credit. Having credit means that a lender has approved you and given you permission to borrow money from them that you're required to pay back, with interest, in the future. This doesn't necessarily mean that you will receive cash in your hands. Instead, in some instances the lender will pay a third-party upfront, such as a furniture store or car dealership, then you'll repay the lender in the future.  Or you may receive a credit card that you can use to make purchases for smaller items like clothes or gas.  

Different Types of Credit 

There are several sources of credit available for people to borrow, but most of them fall into three main categories:  installment, revolving and open credit.

Installment Credit 

This type of credit is actually a loan that you receive in a lump sum. To repay the lender, you make fixed or monthly payments to them until you pay off the loan. Credit accounts that are considered installment credit or loans typically include student loans, car loans, personal loans and mortgages.

Revolving Credit

The type of credit you are most familiar with may be what is referred to as revolving credit. This type of credit is what you receive when you are approved for a credit card. It comes with a credit limit (cap on how much you can borrow) and allows you to pay for any purchase or service you want as long as you don't go over your limit. Payments for this type of credit are made to the lender on a monthly basis, but you can continue to use it as long as you still have credit available.  If you reach your credit limit, you will have to pay down the balance before you can use this type of credit again.  

Open Credit

When you pay your cellphone bill each month, you are using a form of open credit. This type of credit usually consists of smaller balances that must be paid in full each month. Charge cards, not credit cards, also fall under this category because they require you to pay off your entire balance each month, no matter how much it is. Other accounts within this category include utility bills and gym memberships.

Now that you know the three types of credit available and how they differ, you have a better understanding of what each of them can do for you.

How Different Types of Credit Affect Your Score

Every time you apply for credit, your account activity gets reported to credit reporting agencies on a monthly basis. These companies track your accounts, credit limits, interest rates, and late payments, then calculate your credit scores based from this information. While installment and revolving creditors report your information every month, open credit lenders don't usually do that unless you give them permission to do so or your account goes into collections.

Learn More >>> What is a Good Credit Score?

Why You Should Check Your Credit Scores

No one is perfect, including credit lenders. For this reason, it is important for you to check your credit report periodically and make sure your personal information and credit history are correct. Your credit score is based from this information and it’s important as many companies will use it to decide if they want to approve you for things such as a house, car, job or even more credit. If you find any mistakes on your credit report or signs of identity theft, you should report them to the credit agency immediately to get them corrected.

How to Build Credit

Sometimes it can be difficult to get credit for the first time. Here are some tips to help you start building your credit.

Apply for a Secured Credit Card 

You may be able to build your credit by applying for a secured credit card. This type of card requires you to pay a deposit for the lender to extend you credit. Your deposit is then held by the lender and used only if you default on your account and can no longer pay. While this method will cost you money upfront, it's a good way to establish a history of paying off debt and making payments on time.

Become an Authorized User

Another option is to ask your parents or another family member with good credit to add you as an authorized user on one of their accounts. This will jumpstart your credit history as your family member's on-time payments will be reflected on your report.

These tips show that there's more than one way to build up your credit.

Use These Types of Credit Wisely

Having credit is a part of life and something that you should use wisely. It starts with educating yourself about your finances and putting what you learn into practice.

 
Get this article in your inbox.
Email This Article

Related Content

Two street signs on atop the other, bad credit and good credit - pointing in different directions
What is Credit
By Ainsley Rindfleisch
11/07/2022
Credit is a written agreement where one party (the borrower) borrows money from another party (the lender) with the understanding that the borrowed money will be paid back at a later date, typically with interest.
Read More
What is a Credit Limit
By Ainsley Rindfleisch
11/22/2022
A credit limit is the maximum amount you can charge on your credit card. Once you reach your limit, you can't make any more purchases until you pay down your balance. 
Read More
How to Get Credit
By Penny Redlin
11/22/2022
Credit is pretty much a mandatory element in today's world. There's not much that you can accomplish without it. Everything from buying vehicles to a residence to business entities revolves around the concept of credit. It's not just creditors who look at your credit, though. Landlords, employers, insurance companies and even cell phone providers examine credit histories before they decide with whom to do business.
Read More
Two street signs on atop the other, bad credit and good credit - pointing in different directions
What is Credit
By Ainsley Rindfleisch
11/07/2022
Credit is a written agreement where one party (the borrower) borrows money from another party (the lender) with the understanding that the borrowed money will be paid back at a later date, typically with interest.
Read More
What is a Credit Limit
By Ainsley Rindfleisch
11/22/2022
A credit limit is the maximum amount you can charge on your credit card. Once you reach your limit, you can't make any more purchases until you pay down your balance. 
Read More
How to Get Credit
By Penny Redlin
11/22/2022
Credit is pretty much a mandatory element in today's world. There's not much that you can accomplish without it. Everything from buying vehicles to a residence to business entities revolves around the concept of credit. It's not just creditors who look at your credit, though. Landlords, employers, insurance companies and even cell phone providers examine credit histories before they decide with whom to do business.
Read More
Could You Be Saving More?
Subscribe to Edvisors' Student LIFE Newsletter to receive up-to-date financial aid information and advice, explore scholarship opportunities, loan repayment options, and learn expert strategies on how to plan and pay for college.
Newsletter Form
By clicking "Subscribe" I have read and agree to the Edvisors' Terms of Use and Privacy Policy. We strongly encourage you to read our Privacy Policy to understand how we use and share your information.
Thank you for subscribing to our newsletter.
We care about your privacy

This website uses cookies to offer you the most relevant marketing and targeted advertisements.  These cookies can collect information to personalize your experience and in some states are considered a sale of your personal information. You may exercise your right to opt out by clicking on deny cookies.  If you opt out, we or our partners will not be able to provide you with personalized ads and we will not provide your personal information to any third parties.   Please accept cookies for the optimal experience.  You can withdraw or modify your consent for non-essential cookies at any time by visiting Cookie Preference page.

Ask the Edvisor
Blog
Contact Us
Edvisors in the News
Link to Us
Newsletter
Partners
Press
Student Aid FAQ
Testimonials
Tools and Calculators
About Edvisors
Video Resources
Financial Terms Glossary
Accessibility Statement
Sitemap
Disclaimer
Notice of Collection
Interest-Based Ads
Cookie Settings
Privacy
Terms of Use
Your Opt-out Rights
Your Privacy Choices Privacy Options

Better Business Bureau logo

Edvisors provides expert advice on planning and paying for college. On Edvisors.com easily compare student loan lenders, learn how to apply for financial aid, and discover scholarships. Learn about federal and private student loans for students and parents, how and when to apply to college, and more!

Edvisors (“Edvisors Network, Inc.”) provides independent advertising-supported platforms for consumers to search compare and apply for private student loans. Loan offers from participating lenders that appear on our websites are not affiliated with any college and/or universities, and there are no colleges and/or universities which endorse Edvisors’ products or services. Lender search results do not constitute an official college preferred lender list. Edvisors receives compensation from lenders that appear on this site. This compensation may impact the placement of where lenders appear on this site, for example, the order in which the lenders appear when included in a list. Not all lenders participate in our sites and lenders that do participate may not offer loans to every school.

Edvisors is not a lender and makes no representations or warranties about your eligibility for a particular loan or financial aid. Lenders are solely responsible for any and all credit decisions, loan approval and rates, terms and other costs of the loan offered and may vary based upon the lender you select. Please check with your school or lender directly for information related to your personal eligibility.

Edvisors has endeavored to provide accurate information. However, the results provided by lenders are for illustrative purposes only and accuracy is not guaranteed, as such, Edvisors assumes no responsibility for errors or omission in the information provided.

Copyright © 1998-2023 by Edvisors Network, Inc. All rights reserved.

All other trademarks and service marks displayed on Edvisors Network, Inc. websites are the property of their respective owners.

Edvisors Network, Inc. 350 S. Rampart Blvd, Suite 200, Las Vegas, NV 89145

Copyright © 2023 by Edvisors.com. All rights reserved.

×
You Got In - Now How Do You Pay for It?

Get the money you need from leading lenders

1 Pick Your College
2 View Your Options
3 Click to Apply
Exit Modal

PrivateStudentLoans.com recommends you consider all financial aid alternatives including grants, scholarships and federal loans (Federal Stafford, Federal Parent PLUS, Federal Grad PLUS) prior to applying for private student loans.