Often there is confusion over what the difference is between revolving and installment credit. Revolving utilization is a very
significant part of FICO scoring - installment utilization is not. A person really
wouldn't get much of a FICO boost for paying off installment loans first for
example.
Revolving credit is
basically when you are pre-approved for an amount of credit at your
disposal for discretionary use. Most revolving accounts will have a
pre-specified limit available, while some have an "unlimited" credit
limit. Both monthly balances and payments "revolve" around the
debt you have accrued. Typically you can get no interest offers with revolving
credit.
Installment credit is
basically when you sign a specific contract and receive a certain amount
of cash upfront, typically for the purpose of a specific purchase, with
specified contract terms for its monthly repayment. Of note you don't have
additional, discretionary credit to draw upon. Installment loans can offer no
interest offers but are less common.
Most installment loans are
secured by personal property, such as a mortgage, auto loan, or other loan. Therefore installment loans are much
less likely to become delinquent should times get tough. Revolving is usually
the first to become delinquent.
Do you have a better understanding of revolving and installment credit now? Hope it helps. :-)
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