What are the types of credit?

Borrowing, such as personal loans and credit cards, let you borrow a sum of money called the principal, which has to be repaid with interest. It is usually repaid in fixed monthly payments over a specific period of time. The interest rate compensates the lender for making the original sum of money available to you. Because of the interest component, the total amount you have to repay is more than the amount you borrowed.


You can borrow for a specific purpose, such as financing a new car, paying tuition fees, renovating a home or even paying higher interest debts. Borrowings are generally divided in to two types:

Secured borrowings are guaranteed by collateral, which is an item of equal or greater value than the amount of the loan, such as a car loan or a home loan. If a borrower cannot keep up with his loan arrangement and repay his loan, his collateral may be taken to pay off part, or all, of his debt.

Unsecured borrowings, or more often referred to as personal loans, do not require collateral and are made based on your credit score and ability to repay. An unsecured borrowing typically charges a higher rate of interest compared to a secured one.

Credit Cards

Credit cards are a form of unsecured borrowing that allow you to make purchases without shelling out cash. Here are some important things to remember:

  1. You can make repeated transactions on your card up to a maximum amount, which is called your available credit limit.
  2. Each time you charge something to your card, you are borrowing the money until you pay it back.
  3. Therefore, if you pay less than your outstanding balance, interest charges or finance charges apply to your account.
  4. If you pay later than your due date, a late fee normally applies too.
  5. If you pay your outstanding balance in full and on time, no interest charges and late fees apply.

Credit is a powerful tool that comes in different forms. By understanding how credit works, you will learn to manage it successfully and use it to your advantage.

Save For Later

For any concerns, you may call us at (632) 8995-9999 or send us a message through www.citibank.com.ph.
Citibank, N.A. Philippine Branch is supervised by Bangko Sentral ng Pilipinas with telephone number (632) 8708-7087.