Are you ready to build your credit? Since you’re reading this, you’re at the right place. It does not matter if you are building your credit for the first time or if you are in the beginning of the rehabilitation stage. No matter what stage you’re at, Empowering the Possibilities is here to help you on your journey; as stated before this is a journey not a destination.
Let’s begin with the basics of credit. We all are familiar with the term ‘credit,’ but did you know that there are two types of credit? Perhaps you’re thinking, “Oh, of course, bad credit and good credit.” Well, in a general sense, yes, but to go deeper we need to look at credit the way the institutions and lenders look at credit. When we speak the same language they speak, we will be able to begin our credit transformation. More specifically, the two types of credit we are referring to here is closed-end credit and open-end credit.
Closed-end credit is a traditional (one-time) loan that gives the borrower a certain amount of money for a specific reason. Usually the interest rate is fixed and the repayment amount remains the same for the duration of the loan.
The second type is Open-end credit, which is a loan that has revolving credit and a preset limit, like a credit card or a HELOC (Home equity line of credit). This type of credit allows you to borrow what you want and when you want it, and even when you pay it, you are allowed to borrow more in the future.
Credit Cards are another source of open-end credit, which we will discuss in a later session.
Both type of loans can boost your credit score and both can also lower your credit score depending on the discipline, dedication and commitment that you have toward them. Remember these three components will forever be a part of your credit journey.
As a review, you can take a look at our recent post, Steps To Building Credit, which will outline four simple steps to get you on your successful journey to building credit for your future. Let’s keep building!