Foundations for Strong Families 201. Types of Credit


There are different types of credit to meet different short-term and long-term needs, such as credit cards and loans. Credit cards allow cardholders to make purchases on credit and then they receive a monthly bill, which they can choose to pay in full each month or pay less, allowing a revolving credit to form. This means that credit card companies will allow individuals to carry balances, on which they charge interest. Accumulation of credit card debt is especially risky for economically vulnerable families.7

Loans include mortgages, home equity loans, and student loans that allow couples to make immediate investments in assets, such as a home or investments in education that can build earnings potential. Two of the most popular mortgage loans are fixed-rate and adjustable-rate mortgages (ARM). A fixed-rate mortgage, which has traditionally been the industry standard, is a loan for a fixed number of years at an unchangeable interest rate. ARMs change based on the fluctuations of the interest rate.8 There are three major categories of education loans: student loans, parent loans, and private student loans.

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