Credit Talk: What is credit and what are the different types?

Defintion

Credit describes the relationship between the lender and spender. There are multiple meanings of credit. Most commonly credit is an agreement where a borrower takes a sum of money or any amount of value. The borrower repays the lender back at a later time, often having interest. Another meaning is the creditworthiness of a company or a person.

Brief History

The first credit bureau was the Atlanta-based Retail Credit Company (RCC) created in 1899. It not only collected credit info, but personal information about people.

The concept of credit became popular and useful so everyday consumers could afford necessities such as homes or a car.

For example, in 1919, General Motors created the General Motors Acceptance Corporation to give customers with car loans.

In 1928, Ford set up an auto loan subsidiary, provided installment loans to allow customers to drive off with their new vehicle.

Dating back to 1950, a man named Frank McNamara, who the founder of Diners Club, is said to be one of the first people to introduce the Modern credit card. The story goes he dined out and forgot his wallet, frustrating him. He thought of the idea of paying with a cardboard card called the Diners Club Card.

In the 1970s, companies like Master Card and Visa began offering costumers a balance each month.

Flash-forward to the early 2000’s, providers shifted over to radio frequency identification card (RFID), which gave card users access to touch-less identification verification. This allowed credit transactions to become more efficient and completed at a faster pace. Furthermore, this added an additional layer of security.

Here in 2022, there exists even more advanced credit technology and forms of using credit. Today there is biometric identification which allows users to access credit through facial or fingerprint recognition. Other forms of credit usage such as Apple Pay and Google Wallet allow people to swipe their phone to access their credit cards.

Types of Credit:

Single Payment

Single payment is a type of credit that is paid in a single payment within a certain period of time. Often single payment has no interest charged. You receive services in the present time, and pay at a later time. (Some examples: electricity/utility plans, medical bills, internet use).

Installment

This type of credit allows borrowers to pay for services, merchandise, or special purposes, through a series of several scheduled payments or regular payments. Interest is charged with this type of credit. (Some examples: car loans, house mortgage, or personal loans).

Revolving

Merchandise and services can be bought using this type of credit as long as the amount does not exceed the designated dollar limit. Payment for the required amount or anything above the amount is made on a regular or set basis. Interest is charged. (Some examples: credit cards, credit lines).

Sources Cited

Araj, Victoria. “The History of Credit.” Rocket HQ, Rocket HQ, 12 Apr. 2022, www.rockethq.com/learn/credit/the-history-of-credit.

“Free Financial Literacy Lesson Plans for High School Teachers.” InCharge Debt Solutions, 2 Dec. 2021, www.incharge.org/financial-literacy/resources-for-teachers/high-school/.

“Single Payment Credit.” Guide to Using Credit, guidetousingcredit.weebly.com/single-payment-credit.html.

Team, The Investopedia. “Credit: What Everyone Should Know.” Investopedia, Investopedia, 5 Apr. 2022, www.investopedia.com/terms/c/credit.asp.

TheStreet. “A Brief History of Credit Cards.” TheStreet, TheStreet, 13 Jan. 2020, www.thestreet.com/video/a-brief-history-of-credit-cards.

Understanding Credit - Dupaco. www3.dupaco.com/dupaco/documents/Understanding-Credit.pdf.