There are many different types of credit accounts, including credit cards, mortgages, auto loans, and student loans, to name a few. However, did you know that they can all be divided into three different categories of credit? Lenders check your credit report for evidence of each of these credit types as proof that you can appropriately manage different kinds of debt.
Having a variety of credit options can improve your credit score, while not having enough of them can lower it. Here are the distinctions between the three credit kinds and advice on how to use each to raise your credit score.
Although it only accounts for 10% of the elements used to determine your credit score, your credit mix is still an important issue to pay attention to. Because it demonstrates your ability to responsibly use all the various types of credit, lenders prefer to see a diversity of credit types in your background. If you need more information, then click here https://www.jeffleecredit.com.sg/.
Installment credit, revolving credit, and open credit are the three primary categories of credit. These are all financed through various borrowing and repayment structures.
- Installment credit: An installment credit is a sort of loan in which you take out a single, lump-sum loan and pay it back over the course of a certain period of time with interest paid in regular, fixed instalments. The account is deemed ended once an instalment credit loan has been fully repaid.
- Revolving credit: Revolving credit accounts let you continually borrow money and pay it back up to a predetermined limit from a single line of credit. How much you borrow is under your power (and ultimately need to pay back). You can avoid ever paying interest if you pay your amount in full each month because interest is levied on any sum that is left over beyond the due date for each statement.
- Open credit: This type of credit is distinct in that the monthly payments fluctuate and the amounts are paid in full at the conclusion of each billing cycle. The amount owing on your electricity bill is determined by how much electricity you used that month, making it a fantastic illustration of open credit.
Conclusion
If you’re not paying your bills on time and maintaining a low credit utilisation ratio, having a credit mix won’t do you much good. It can give your credit score the boost it needs to move to the next level if you already have strong credit practises.