Types of Credit That You Should Know About

Credit is a financial term that many teenagers may be unfamiliar with. If you’ve never had much of your own money, you’ve never had to think about things like credit before. However, it’s something that you should learn about before becoming an adult. Read on to learn about some of the most common types of credit and how to use them correctly.

teen credit types

Credit Cards

When you get old enough to start generating your own income, and you have your own bank account, you should learn about credit cards. There’s a big difference between credit cards and debit cards that you should be aware of. Debit cards transfer money from your bank account to the account of the business where you spent money. If you have a debit card, you can only spend the money you have in the bank. When you buy something with a credit card, on the other hand, the money doesn’t come out of your bank. You are lent the money from your credit card company and can pay them back later. However, don’t let this get to your head. You need to pay off a bit of your credit card every month. The longer you take to pay off the money you spent, the more interest it will generate, and the more you have to pay. If you have a credit card, you can use it to boost your credit score. Just be sure not to spend more than you have, and to pay it off every month.

In-Store Financing

Throughout your life, you will need to make some big purchases. Things like furniture and appliances can be pricey, and you might not be able to pay for them upfront. Usually, stores that sell these types of items have financing options, where you can pay for the item month by month until you’ve paid it off. For example, if you buy a $1,000 couch, you can choose to make five payments of $200 instead of one big payment upfront. This is called an installment plan. You’ll be able to pay the same amount every month until the item is paid for. Other in-store financing options can extend over a longer period of time and you can vary your payment amount month to month. Store credit often requires an application before you get approved. They need to make sure you’re trustworthy enough to make your payments on time.


This is a big one. However, it’s important to know. If you one day decide to buy a home, you’ll need to take out a loan to pay for the property. This loan is called a mortgage. Depending on the area where you live, how much money you make, and other factors, you’ll receive a certain amount of money from a lender to help you purchase your home. In return, you agree to make monthly payments for a period of time (usually about 25 years) until you can pay back the full amount. This type of credit also comes with interest. It’s critical that you pay your mortgage on time. If you miss payments, you could lose your home.

Credit is an important part of finances that is important for you to understand. If you want to become a financially independent adult, having good credit, and being able to manage these payments will help you get there. Speak with your parents about any further financial questions, and be sure to learn as much as you can.

Check out this article on why you should be careful with credit cards!

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