Unsecured debt and revolving credit affect credit scores for the better and sometimes the worse. The type of debt someone has adds up to about 10 percent of the score, according to the Privacy Rights Clearing House. Revolving credit carries more weight than unsecured debt from a finance company, making negative payment history on a revolving credit account worse.
Types
Consumers borrow different types of credit. Unsecured debt has no collateral. Secured debt uses collateral as a safety net if the borrower doesn't make payments. Revolving credit comes in unsecured and secured debt. A home equity line of credit represents secured, revolving credit, while a credit card represents unsecured revolving credit. Personal loans from finance companies represent another form of unsecured debt.
Warning
Credit bureaus look at revolving debt closely, says the Privacy Rights Clearing House. The amount someone spends and pays back each month affects credit score, along with payment history. The higher the debt to available credit ratio, the lower the credit score.
Considerations
Credit bureaus look at secured debts more favorably than unsecured debts because the lender may reclaim property if the borrower fails to pay. They also put heavier weight on mortgages and car loans than they do on unsecured loans from finance companies, states the Privacy Rights Clearing House.
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