The importance of using credit

No matter what stage of life you’re in, your use of credit is a key factor in your financial journey. Whether you’re looking to take out student or auto loans, purchase a new home, start a business, or make retirement plans, having good credit will go a long way. You can’t have a good credit score without using credit regularly -- and having a credit card is often the easiest way to do that. 

there are two main types of credit (Revolving and Installment)

What is credit?

Let’s start by highlighting what credit is exactly. Credit is the ability for a buyer to purchase a good or service before making a payment. Credit is based on the trust or agreement that the buyer will make the payment in the future.

There are two main types of credit – revolving and installment. 

Revolving credit is an open, indefinite account that a buyer can use repeatedly, typically with a credit card that allows the account owner to make payments by a scheduled date. Credit card accounts come with credit limits, and the limit goes down as purchases are made, and then goes back up when a payment is made. This type of credit can also be issued as a line of credit. 

Installment credit is commonly referred to as a loan. This could be a loan for purchasing a car, home, business, education, or any other significant purchase. A loan has a set repayment schedule, monthly rate, interest rates, and fees that are agreed upon when taking out the loan.

Why is using credit important?

Having a reputable history of using credit and making payments on time will put you in a good position to take out a loan if it’s needed. Lenders are more likely to provide a loan to consumers who have proven to have reliably made their payments. Opening an account and using a credit card for purchases is one of the best ways consumers can start to build a strong credit score.

Beyond taking out loans for major purchases, credit can impact an individual’s ability to rent an apartment, open a utility account, or obtain certain types of insurance. In some states, employers can run a credit check on job seekers. 

The bottom line is that to make any large purchases or life moves, you want to have a good credit score on your side. Read our previous article for advice on using credit wisely and building a good credit score. 

Contact our team of professionals today to learn more about our different credit card options and see what’s best for you.