How People Use Credit

Lenders are known to analyze your credit behaviour and put you into categories. This notion comes from the fact that there are a few broad ways, in which most of us use our credit. Here is a list of few behavioural types.

Transactors: This is the type of credit usage that most people intend to do. The idea is that credit companies give an incentive to use their services. Instead of transacting in cash, if one uses credit, they are able to make money on the interest earned in the interest free periods as well as the gifts and freebies that are on offer. However, this plan goes wrong when people forget to stick to the budget. Impulsive spending soon means that you are spending beyond your means and that paying in full becomes more and more difficult.

Revolvers: This is the kind of people that use credit to fill their monthly gap. To them solvency is not an issue. They are sure that they can pay the loan. However, it is the timing of the cash flow that is difficult for them to manage. Thus, they tend to fall into a cycle of keeping balances or missing payments, all of which affects their credit score.

Pretenders: The last category is the pretenders. These are usually people who have just started using credit. Many of them think about the credit card as a free tool. They think these as freebies on offer. They have no plans of repayments and have no clue what their financial state is.