The 3 types of credit are: revolving, installment, and open accounts. These types of credit vary based on term length (fixed or indefinite), payment (fixed or variable), and monthly amount due (full balance or minimum). Ideally, it’s best to have a variety of these types of credit as this will create a good credit mix, which makes up 10% of your overall credit score. The characteristics of each type of credit are listed below.
3 Types of Credit Accounts:
Revolving credit accounts – Credit cards are the most common example of a revolving credit account. The key factor here is that you're only required to pay a minimum amount of your balance each month. If you choose to do so, then the remaining balance will be rolled over (or revolved, if you will) into the next month (and subject to interest charges, in most cases).
Installment accounts – This type of credit account requires you to pay a fixed sum each month based on factors such as total amount borrowed, the time period of the loan, and the established interest rate. All loans – including mortgages, auto loans and personal loans – are installment accounts.
Open accounts - The most common examples of open accounts are utilities accounts and cell phone contracts. Every open account has a balance that must be paid in full each month. As opposed to both revolving accounts and installment accounts, open accounts usually don't charge any interest. In most cases, open accounts do not appear on credit reports unless the company reports late payments.
Since credit mix accounts for 10% to 20% of your credit score (depending on the model), it’s a good idea to keep various types of credit accounts open and in good standing. You can visit the offers tab of your WalletHub account to get personalized credit card and loan recommendations to fit your needs. While you’re there, be sure to check your free credit score and credit report. Credit scores and reports represent yet another type of credit – one that reflects how well you manage the other three types of credit.
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