Wednesday, March 28, 2012

Is Revolving Debt or Installment Debt Better for Your Credit Score?

Is Revolving Debt or Installment Debt Better for Your Credit Score?

While reviewing your credit report, you may notice some debts marked as "revolving" while others are labeled "installment". Although these types of accounts are very different, having both on your credit report is crucial to maintaining the best possible credit score.


    Neither revolving debt nor installment debt is better for your credit score, yet both are required on your credit report for you to demonstrate a balanced debt profile.


    Revolving debts allow you to make purchases on a line of credit and then pay down the line of credit in order to use it again in the future. Credit cards are an example of revolving debt. Installment debts include any loans you finance that possess a set payment amount and date that the debt will be paid in full.


    The types of debt that you carry account for 10 percent of your overall credit score.


    You can close revolving debt accounts voluntarily and then paid them off but you cannot voluntarily close installment debts. Because the length of your credit history is taken into consideration when your score is calculated, closing an old revolving account may cause your credit score to drop.


    Both installment debts and revolving debts must be paid on time. Because your payment history on your debts is 35 percent of your credit score, making a late payment on either type of account will damage your credit rating.


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