Different kinds of Credit: Revolving & Installment

As you start to learn about financing your education, you may start to run into terms like revolving credit or installment credit. You know that credit is about borrowing money, but just what is the difference?

Revolving credit allows you to borrow up to a certain limit of money multiple times. As you pay the debt off, the credit becomes available to you again.

In this method, your credit “revolves”, allowing you to borrow more money as often as you want without a set payment plan. This type of credit is used in credit cards, and it's best to think of it as borrowing money from a friend; they’ll lend you money pretty freely and without too much fuss. However, they do expect you to pay them back when you reach a certain limit before they’ll lend you more.

Installment loans are what you’d consider a loan from the bank: borrowing a single sum of money that you pay back with scheduled, periodic payments.

At regular intervals, you pay back a portion of what you borrowed - plus interest - and eventually pay back the full principal. These are typically your housing, student, or car loans.

If I’m a student, are installment loans useful for me?

Yes, they can be! Even if you’re not planning on buying a car or taking out a student loan, an installment loan can help your credit score if...:

  • You pay on time: As mentioned in our previous article, the biggest influence on credit scores is payment history, so a record of on-time payments will help your credit.

  • You currently only have credit cards: Another factor in your scores is your diversity of credit types. Adding installment debt helps you vary your types of credit and should improve your score.

  • You have a high credit utilization rate: Moving credit card debt onto an installment loan reduces the percentage of the credit limit you’re using, another factor in your credit score.

One thing to keep in mind is the interest rate on your installment loans and to weigh improving your credit history with the extra cost that you pay.


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