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Account Types

    Types of accounts

    Before you open up a credit account, find out which type your new account will be. There are three account types:

    Before you open up a credit account, find out which type your new account will be.

    Open 30-day

    Installment accounts

    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
    Interest rate = 9.44%
    Term = 2 years
    Monthly payments = $228

    Total amount paid = $228 x 24 = $5,472
    Total amount of interest = $472

    Revolving accounts

    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 interest charged.
    2. Pay more than the minimum amount, with interest charged.
    3. Pay a minimum amount chosen by the creditor, with interest charged.

    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 accounts

    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.



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