What are the two main types of credit?

The two main types of credit are revolving credit and installment credit. Revolving credit allows consumers to borrow money up to a certain limit, use it, and then repay it either in full or in part, with the available credit replenished as repayments are made. Credit cards are a quintessential example of revolving credit, where users can continually borrow and repay based on their credit limits.

On the other hand, installment credit refers to loans that are paid back in fixed amounts over a set period, typically with a defined number of payments. Mortgages and auto loans fall into this category, where the borrower receives a lump sum upfront and gradually pays it back in regular, equal installments.

This classification is essential for understanding how different types of credit function and their impact on a person's financial management. Each type of credit serves varying needs and financial situations, influencing borrowing behavior and credit utilization strategies.