What are the principles involve in credit?

Types of credit. There are three major types of credit--consumer, commercial, and investment.

Consumer credit enables consumers to spend more money than they have at the time. A charge account is one kind of consumer credit. Most charge accounts involve no interest, but the full price of items bought through a charge account must be paid monthly. If the full amount is not paid by the specified date, many charge accounts require interest payments. Most businesses that provide charge accounts give their customers credit cards to make credit buying convenient. Banks also issue credit cards that can be used to charge purchases at many stores, restaurants, and other businesses. Another kind of consumer credit is an installment plan. Payments for a purchase on an installment plan are made over a stipulated period and, in most cases, include interest.

Commercial credit is used by companies to develop their business. They expect to repay the loans from their increased profit. Most of these loans are repaid within six months and so are called short-term credit.

Investment credit is a loan paid back over a period as long as 30 years, or even more. This kind of loan is called long-term credit. Examples include home mortgages and corporate bonds. Businesses use investment credit to undertake a major project, such as the construction of a factory.