Types of credit

May, 2018

There are multiple types of credit used to build a person’s credit history. Revolving Credit, Charge Cards, Installment Credit and Service Credit all factor in to the overall credit score. Responsible use of all of these avenues can assist in improving your credit score.

Revolving Credit is built through the use of traditional credit cards. Traditional credit cards offer a maximum credit limit. While you are able to make purchases up to the set limit the idea is to pay actively and stay well below the active credit limit. Working to keep your balance at around 30% or lower of your limit on a month-to-month basis will usually reflect positively on your credit report and continuously improve your score.

The key to revolving credit is to keep up constant activity. Keeping the balance low is ideal, but having a balance that remains at zero lacks activity and will not improve your overall credit score. A credit card pushed to the max or carrying a consistently high balance will have a negative outcome. Revolving credit requires balance to create a constant positive affect on your score.

Charge cards also allow you to borrow up to a set monthly balance. In this case the balance must be paid off each month and cannot be carried over.

Installment credit refers to loan agreements. A specified amount is borrowed with a contractual agreement to pay back the amount, typically in monthly installments. Student and car loans and home mortgages are all common examples of installment credit. As you improve your credit Vision can assist in transferring you from lease option purchase to a traditional home mortgage.

Service credit encompasses a wide variety of bills common to both renters and home-owners. Cell phones, home utility bills and subscription memberships all may play into your score as service credit. Some of these items may not be reported regularly but failure to pay can still negatively impact your credit. If unpaid service bills are reported to a debt collector they may reflect poorly on your credit.

All of these items can be used to improve your overall credit history. Good credit doesn’t just mean being able to borrow. With good credit you can gain options to reasonable interest rates on future revolving and installment credit agreements, leading to better rates and a lower payoff.

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