Types of Credit and their impacts on your credit
score: Accounts for 10% of your credit score.
There are two basic types of credits: Open-ended
(Revolving) and Closed-ended (Installment). Each
type has a different effect on your credit score.
They make up 10% of your credit score:
Open-ended Credit (Revolving):
Revolving Credit refers to a credit, up to a
specified limit, made on a revolving basis for the
purchase of products. Bills are issued monthly to
the borrower for a total balance of charges which
are usually a portion of the credit. The borrower
has a choice to pay an amount from the Minimum
Payment Required to the full Balance within a couple
Credit Cards (MasterCard, Visa, American Express,
Discover Card, etc.), Store Charge Cards (Macy’s,
JCPenney, Sears, Gas Cards, etc…), are examples of
Open-ended or Revolving Credits.
These cards usually carry a high interest rate and
their lines of credits are not that high.
card interest rates are controlled by the state of
the card issuer, not the state you live in. Interest
rates can vary widely. It is important to make sure
you know what your interest rate is.
Installment Credit refers to a credit for a specific
amount, made for the purchase of a specific product,
usually large items, such as: home, car, boat, etc.
The payment period, number of payments and payment
amount for each period are fixed. The borrower
cannot pay less than the specified payment amount
for each period. These loans usually carry a low
interest rate and are for a longer period of time.
Closed-ended Credit (Installment) payment history,
especially car loans and real estate accounts have a
more positive impact or weight on your credit score
than Open-ended Credit (Revolving) payment history.
Scoring models look favorably on Installment payment
history. Having good Installment payment history on
your credit report is essential. Try to have your
name as a borrower or co-borrower on at least one of
these types of accounts.
Having a healthy mix of revolving
credit and installment loans can positively
contribute to your creditworthiness.
Foreclosures and Short Sales in Real Estate and
Repossession & Bankruptcy, in general, have
major negative impacts on your credit score, much
more than unpaid credit or charge card accounts. Try
to avoid having derogatory accounts and work it out
with lenders as much as possible.
Therefore, if you have (or could come up with) only
enough money to pay your mortgage payment OR pay the
minimum balances on your two credit cards this
month, your first choice should be to pay the
mortgage payment now and pay the credit cards later.
Don’t carry a large number of credit or store charge
cards. Interest rates are high and scoring models
look unfavorably on them. Credit card interest rates
are controlled by the state of the card issuer, not
the state you live in. Rates can vary widely, so
make sure you know what your interest rate is. Some
states, especially in the North East, have interest
rates up to 30% or so. The maximum interest rate a
credit card issuer in the state of Texas could
charge is 18%.
HOW to overcome the problems with your credit
history and credit score?
Knowledge, education, awareness, practice and
discipline are the essential keys to being
successful on any subject. The book,
"Credit Score Tips and Tricks",
provides you information, tools, techniques to
educate yourself and manage your credit report &
credit score, and therefore manage your finances
effectively at no additional cost.
I have decided to bring and share with you,
chapters or sections of my book,
Credit Score Tips and Tricks,
as series of
articles here. This is the number
24 of such a
I also created and manage a GROUP in ActiveRain,
Credit Reports and Credit Scores, Please
feel free to join and share your thoughts and
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