Money Basics

What is credit?

Credit is a contractual agreement that allows you to receive a loan and pay it back later. There are three types of credit accounts:

• Revolving agreement
  Banks, gas and oil companies, and department stores typically issue credit cards based on a revolving credit agreement. You can either pay the full amount due each month or make a minimum payment—an amount less than what you owe.
  
  
• Charge agreement
  Charge cards—not credit cards—and charge accounts with some businesses often require repayment based on a revolving agreement. You promise to pay the balance in full each month to avoid paying interest charges.
  
  
• Installment agreement
  Automobiles, furniture, and major appliances are often financed via an installment agreement. You agree to pay back a fixed amount in equal payments over a certain period of time. Personal loans are also sometimes paid back in installments.