So you just got your hands on your most recent credit report, and as you’re looking through, you notice that there are generally two categories of credit: revolving and installment. What’s the major difference between these two? How do they affect your credit score?
Let’s go over what each one means.
Revolving Accounts
These are the credit accounts that stay open and allow you to continually utilize them as long as you are regularly paying them off like your regular old credit card. Any credit card, open or closed, appears on your credit report as a revolving or open-ended line of credit. If you are an authorized user on someone else’s credit card, that card will also appear on your credit history and affect your credit score as well. It’s important to make sure that every authorized user card is from someone you trust like a friend or family member.
Most credit reports will display some account numbers, the date that the card was opened, and the last reported balance on the card. Other information to be aware of is any late payments, the account status (opened, closed, or terminated), and if the account is considered delinquent or derogatory in some way.
It’s a good idea to keep track of this information on a credit report, not just with your creditor. Keeping all the information accurate, including balance and such, can affect your credit score. Somewhere down the grapevine of credit reporting, some accidents may happen. This can negatively affect your credit-–imagine if a bureau reports a late or missed payment that you know for sure that you made. Credit bureaus may not always be correct, so if you see some inaccuracies on your credit report, you can always send a letter to the credit bureaus to correct the information.
Installment Accounts
These are the lines of credit that involve any form of loan that is given to you in one lump sum and must be paid off in full: car loans, personal loans, and mortgages. These differ from the revolving credit account in the way that they don’t have a set credit limit like a credit card. Instead, these report the loan amount and the current balance on the loan. Loans can often affect your credit in a negative way if you are not paying them off in a timely manner; after all, they’re considered active forms of debt. Once the loan is fully paid off it can benefit your credit score.
Unlike most credit cards and revolving accounts, installment loans may not appear on all three credit bureaus. Small lenders like AFFIRM only report to one bureau, so the scores may fluctuate between the three because of these lenders.
What’s Important
Whether it be a revolving or installment credit account, they both count toward your credit score. The best way to keep your score in the green is to avoid any form of late or missed payments with any account. Having a mixture of both will also benefit your credit history and how furnishers will look at your report. So having a variety of both will grant a healthier credit score.
If you feel like you’re having a hard time improving your credit score, feel free to give Fix Your Credit Consulting a call at (877) 212-2450 for a free consultation.
If you have any questions, feel free to give us a call at 877-212-2450!
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