Things you should know about installment credit accounts
One way to keep your credit score as high as possible is to maintain a good credit mix. That means having both installment credit accounts and revolving credit accounts. Think of the former as a great way to build your credit as they allow for payments over time, and payment history is a big factor in your score. Let’s take a look at everything you need to know about installment credit.
What Is Installment Credit?
Installment credit is a type of loan where you make fixed payments over a period of time. Installment credit accounts also have fixed or variable interest rates and a fixed repayment term.
Common types of installment credit include:
- Personal loans
- Auto loans
How It Works
When you apply for an installment credit account, you borrow a fixed amount of money and make specific payments until the loan is paid off. These loans can have payment terms of months or years. Installment loans can have fees, like origination fees and late payment fees.
Installment vs Revolving Credit
With revolving credit accounts, you can carry a balance on the loan from month to month. You can also decide how much you want to borrow and how much you repay.
Examples of revolving credit accounts include:
- Credit cards
- Home equity lines of credit
How Installment Accounts Can Impact Your Score
Since payment history is the largest factor in calculating your score, making on-time payments over a long period of time on an installment loan can benefit your credit score greatly.
Written by Chris O’Shea, savvymoney.com.