Types of accounts
Before you open up a credit
account, find out which type your new account will be. There are
three account types:
For an installment credit account, such as a car loan, the borrower signs a contract. A fixed amount is paid in regular installments for a specific period of time. This amount includes interest.
Joe buys a used car on credit and agrees to pay it off over 2 years in equal monthly payments. This is an installment credit account.
Loan amount = $5,000
Total amount paid = $228 x 24 = $5,472
Revolving credit accounts such as VISA and Master Card give the borrower more options:
1. Pay the debt off in full each month, with no
Option 1 is the best way to keep your credit in check. Option 2 is a good idea if you can't pay the full balance. Try to avoid Option 3. You'll end up paying a lot more in interest over time.
Open 30-day credit accounts require the consumer to repay the full balance due every month, with no interest charged. Instead of paying interest charges, you pay an annual fee. American Express is the most common example of an open 30-day account. Some local businesses also offer this type of account.
By visiting Allie Mae you have taken your first step toward becoming an educated borrower. Allie Mae is an objective, independent source of information for the mortgage consumer. Whether you are buying a home, refinancing, taking a home equity loan, building a home or in need of a mortgage for any purpose, Allie Mae is here to help. Allie Mae has helped thousands of people with their mortgage needs. We have a complete selection of articles, charts, calculators, and checklists designed to help you through the mortgage and home buying process.