What Is Open End Credit?
Open end credit is any kind of loan that while you are making payments to that loan, you can also access funds repeatedly by making withdraws and continue to repay the floating balance. On these kinds of loans you have a minimum amount that you must repay depending on your balance, but you always have the option of paying it completely off at any time. This is a great way to rebuild your credit or keep your credit strong. Potential creditors, when pulling your credit, can see how you manage money.
Instead of only making repayments to a fixed loan amount, you have access, usually to a credit limit. Staying below 30% of your credit limit shows that you are responsible enough to balance your finances between your income and debt. Also by staying 30% or below of your credit limit greatly improves your credit score, so in time your credit limit can be raised.
An Open End Credit Example
An example of open end credit is a credit card. Other examples include a mortgage loan (equity lines of credit), overdraft for checking accounts and personal lines of credit.
What Is The Most Common Form Of Open End Credit?
Credit cards by far are the most common form of open end credit. They’re over a billion credit cards in use today in just the United States. In the 1950’s Frank McNamara, the founder of Diners Club, introduced the first credit cards that are more like the ones we know today. A few years later in 1958 Bank of America introduced the first general purpose credit card. This way of buying began to seep into our lives . As time went on advancements in technology led the way for a new means of paying. Charge it now pay for it later.
Open end credit loans are very useful in our day, but it can and does have its drawbacks and its benefits.
Drawbacks Of Open End Credit
• The biggest drawback here tends to be that with open end credit, it’s easy to buy something even if you don’t have the money. The mindset is I can deal with the money issue later.
• Open end credit can have variable rates that can go up.
• More times than not, a minimum payment or two will be missed and with this, brings higher interest rates on the money you owe along with late fees. It can get to the point where the minimum payment is not enough to account for the interest and other tacked on fees. So every month you get further and further into the hole while making your monthly payments.
• This type of credit can be vulnerable to fraud.
• Since these types of loans are usually made with no collateral, meaning unsecured, the interest rates tend to be higher, even for people who have a good credit rating.
Benefits of Open End Credit
• One of its biggest benefits is the same as its biggest drawback, that is, the availability to money. By showing you can maintain a grasp on your spending and repaying, creditors will be more than happy to give you a loan or extend your credit limit. Like I said earlier, keeping a balance of your credit limit below 30% keeps your credit score looking good.
• Open end credit loans usually come with a good introductory rate for some predetermined length of time. This is a good benefit, to utilizing this period by transferring other higher interest loans onto this one and paying it off. Also, you can pay the total amount you charged every month and you won’t have to pay any interest charges. This way you are using their money for free.
• Another good benefit is the flexibility the loan offers. You never know when situations are going to come up. Having a flexible amount to draw on means that you have wiggle room with your monthly income.
• Some credit cards come with cash back or some type of reward for using. This can be a very good advantage if your spending is under control.
Some months you won’t have extra expenses and other months you may need more than you monthly income can provide. Just remember to balance the months. Pay back to the loan more on the months you can.
Keep in Mind
Open end credit, like credit cards and personal lines of credit, are good types of loans to have to give your monthly income flexibility. But if you’re the type of person who has a mentality to charge now and find a way to pay later, you may end up with a problem.
Managing your open end credit loans can lead to a good credit report to help with all areas where credit is needed. Before you dive in too deep weigh the pros and cons and consider your own character.
If you are interested in building or rebuilding your credit, check out my article Credit Secrets.
Sometimes, if you have been put into a situation where you are paying out a lot of monthly bills and the minimum payments aren’t doing very much good to the amount you owe, you may need to get a debt consolidation loan. I want to hesitate anyone to think before acting. A debt consolidation loan can be great, and I mean great. Pay off all your bills and pay just one monthly payment, but remember why you did this. If you gain extra bills again, you could end up worse off then you were. Instead take some of that extra money and pay more on the consolidation loan to get it paid off faster.
Below is company that can help you get out of debt in this way. They have a proven track record for helping people. The company is Sofi. The have excellent rating and on trustpilot they have a 4.7 rating out 7,357 reviews. They are also FDIC insured.
To add to this, Sofi is going to give you $300 dollars if you let them help you get out of debt! Just click on the link below to start you exciting journey. And just to let you know the $300 is not skirted around like I have seen in some companies. You almost have to beg them to get what they had advertised. When you click the link, they say up front you are getting $300 if you get a loan with them and you will be helping me as well. The only bad part is that it is not available to residents of Vermont.
I hope this information helps in defining open end credit as well as some tips on how to manage your credit when using this type of loan.