Debt usually comes in two forms: Installment and Revolving. An installment loan is where you borrow money in a single lump sum and have to pay it all off by a set date. Examples of installment loans include car loans, mortgages, and student loans. In contrast, revolving debt is when you are given a specific credit limit and can continuously borrow money up to that given limit. The most common form of revolving debt are credit cards.
HOW REVOLVING DEBT IMPACTS YOUR CREDIT SCORE
While both revolving and installment debt can affect your credit score, scoring agencies weigh your revolving credit more heavily because they believe it is a better indicator of your risk as a borrower. This line of thought makes sense, since a revolving debt means you are borrowing money and paying it back repeatedly and consistently.
Because of this, if you have extra money and are trying to pay more than your minimums on your various debts, it is better to pay off your revolving debt first. At least from the point of view of your credit score.
Originally posted 2021-12-03 22:50:37.
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