Ohio State University Extension/Research

Manage Your Money

Lesson 4: How Much Credit Can You Afford?

MYM-3-03

Types of Credit

credit card There are two basic types of non-mortgage consumer credit: closed-end and open-end. Closed-end credit is extended for a specified amount over a set time period. No further purchases or loans may be added to the original amount. The payment period, payment amount, and the number of payments remain fixed for the life of the credit agreement. For example, purchasing a car with an installment loan is a closed-end agreement. Other examples include loans for expensive items such as major appliances or home improvements and personal loans.

Open-end credit allows you to make repeated purchases or obtain cash up to a specified limit from an on-going agreement with the creditor. Some agreements require payment of the full balance each month. Other agreements allow a monthly minimum payment with a finance charge on the balance. Examples of open-end credit include revolving charge accounts, charge cards, credit cards, checking accounts with overdraft privileges, and home-equity line of credit.

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Written by Ella Mae Bard, Extension Agent in Family & Consumer Sciences, Knox Co., Carolyn McKinney, Family Resource Management Specialist, Consumer & Textile Sciences Dept., Nancy Hudson, Northeast District Family & Consumer Sciences Specialist, and Diane Johnson, Extension Agent in Family & Consumer Sciences, Darke Co., Ohio State University Extension. Portions adapted from "Managing Your Money," prepared (1994, 1996) by Eleanor Ames, former OSU Extension Agent (Madison Co.) in Family & Consumer Sciences.

For more information about family life issues, visit http://families.osu.edu

Manage Your Money is a six-part self-study course. The lessons include:
  1. Getting Started
  2. Where Does Your Money Go?
  3. Stop Spending Leaks
  1. How Much Credit Can You Afford?
  2. Develop Your Budget
  3. Your Net Worth and Financial Records

Appreciation is expressed to Marjorie McCullough, Office Associate, Consumer and Textile Sciences Department, who worked with several drafts of these materials.

This material is intended only for educational purposes. Mention of a proprietary product, trademark or commercial firm in text or figures does not constitute endorsement by Ohio State University Extension and does not imply approval to the exclusion of other products, firms, or organizations. For specific, consult your financial or legal adviser.

All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.

Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.

TDD No. 800-589-8292 (Ohio only) or 614-292-1868