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Kinds of Credit Accounts

Institutions that grant credit generally offer three types of accounts. Though details of these plans vary slightly from one creditor to another usually you will find the major points are the same.

The Installment Agreement is the contract a consumer signs agreeing to repay any charges in fixed amounts at fixed intervals for a particular time period. A car or furniture loan is examples of an installment agreement. Personal loans are usually paid back in this way too. 

A Revolving Agreement allows a customer to either pay in full or make partial payment on the outstanding balance. Department stores, gas and oil companies, and banks usually offer a revolving account.

American Express is an example of how a Charge Agreement works. In this case a consumer agrees to pay the full balance each month so that there is no interest charge.

A secured Credit Card works much like a debit card from your bank. The financial institution sets up a savings account for when you make an initial deposit. You are allowed to charge a certain percentage of that savings reserve on your card. For example, if you put $500 on deposit, and the company allows you to charge up to 75% of the amount on deposit you would be authorized to charge up to $375 dollars on the account. You would be allowed to make payments on the balance, but should you default on the payments the bank has your money to secure your debt. The down side is that often there is a steep 'membership fee', 'application fee', or 'annual fee', which may or may not be refundable. On top of that is the deposit. Often these fees total $200 or more and are charged to your credit card before you even receive the card. Once you pay off the fees you are allowed to charge a maximum up to the amount you have on deposit. From time to time the company will review your credit report and your record of payment to them and will, for an additional fee, raise your limit. Of course you can always increase your limit by making a bigger deposit too.

These secured credit cards carry higher interest rates and penalty fees and often do not allow a grace period. The grace period is the amount of time between when you charge the item and the time interest begins to accrue on the balance. This mean that even if you pay off the card in full each month you could still pay an interest fee for the interval between when you made the purchase and the time your payment is processed.

Anyone looking for a secured credit card to reestablish their credit should check the terms carefully.

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