Types of Credit

There are three main types of credit that influence your credit history: revolving credit, installment credit, and service credit. Your creditworthiness is determined by the mix of the types of credit you use, as this allows borrowers to assess your reliability in different ways. We cover each type of credit in more detail below.

1.) Revolving Credit

Revolving credit is most often associated with credit cards, but can also apply to lines of credit attached to checking accounts or home equity lines of credit (HELOCs). Revolving credit means the lender assigns you a credit limit which is often based on your creditworthiness. The lender can increase or decrease your credit limit based on factors such as payment history.

As consumers pay down their balance each month, they can make further charges to that credit account up to the limit. If you’re working on building your credit history, it’s a best practice to pay off your balance in full each month, which also prevents you from going into debt.

2.) Installment Credit

Installment credit is a loan for a specific amount of money that the borrower makes payments toward over time. Common types of installment credit include mortgage loans, vehicle loans, student loans, and other personal loans. The interest rates on installment credit are often fixed throughout the life of the loan, unlike interest rates on revolving credit, which can fluctuate.

3.) Service Credit

There is no such thing as a no-risk investment. Investment scammers, however, will do their best to appeal to investors’ desires to make a lot of money without risking their initial investment. Licensed investment brokers are very transparent about the fact that all investments carry inherent risk.

Service credit is different from revolving credit and installment credit in that you’re borrowing money for utility services. Utility companies who provide electric, gas, water, or other services create contracts with you in the understanding that when they provide services, you’ll pay for those services at the end of the month after you’ve used them. This is why the payment history on your utility bills is included in your credit reports. Source