There are different types of credit?

YES. The lending industry has as many types of credit as there are types of loans and collateral. For your consumer credit report we will concentrate on 3 types of credit:

Real Estate Loans

These are different types of Mortgages for land or property with the exception of HELOCs or Home Equity Lines of Credit. HELOCs are revolving credit and you will learn about that in a moment.

Installment Loans

These are what most people think of when they think of a loan. You borrow a set amount of money at a set rate and payment and you pay the loan off in a set amount of time and then it is over. A car or auto loan is a type of Installment Loan. Some are secured by collateral like an auto loan an some are not like some bank loans.

Revolving Credit Loans

These are what get people in trouble with credit. A typical revolving credit loan is a credit card or a store card.

With this type of credit you are given a credit limit and you can borrow up to the limit then pay it off and borrow it again.

Like a revolving door of credit which is where the name came from. A Home Equity Line of Credit (HELOC) is a Revolving Loan because it is basically a credit card using your home's equity as collateral. It is a type of second mortgage.

Revolving credit loans have their own unique and frankly unfair way of reporting to the credit bureaus and conducting business. A huge factor that goes into calculating your credit score is your Credit Utilization Ratio.

Click here to learn more Credit Utilization Ratio

**This is Important Information!**

Revolving Credit Accounts are a far more important indicator for your credit report than most people understand.

The number of revolving credit accounts you have and the length of time you have had them have a tremendous impact on not only your credit score but your eligibilty for certain types of loans.

For example many real estate loans and mortgages require you to have at least 2 SEASONED revolving credit accounts.

SEASONED, in this case means that your accounts are at least 24 months or older. This is to qualify for the loan even if you have a high credit score and low debt to income ratio.

The amount and seasoning of your revolving credit accounts can bring you into different credit scoring models. This can be positive or negative. Too many revolving credit accounts looks bad to the credit bureaus and not enough can also be bad. Do not apply for every credit card or store card. Try to keep it to a minimum.

Once your Credit Utilization Ratio of your REVOLVING CREDIT on any given revolving account goes above 50%, the credit bureaus think you are starting to be over extended in your credit and every month your ratio is above 50% IT LOWERS your credit score even if you pay your bills on time.

Any of your revolving accounts that have reached or gone past their respective credit limits will likely lower your score dramatically, even if you pay everything on time. This is why some people that have never missed a payment in their lives are surprised to learn they have developed bad credit.

This is a reason many critics consider revolving credit, the credit card companies and the credit bureaus' reporting system unfair and predatory.

Unfortunately, revolving credit is something you will have to deal with. One of the purposes of this site is to give you enough information so that you are not as easy to prey on.

A good rule to follow is to avoid charging anything to your revolving credit accounts but if or when you need to make sure you can pay off whatever you have purchased in LESS THAN 6 MONTHS.

Remember

The system is in place to figure out how to justify charging you as much money as possible. It helps to pay your bills on time and to not charge up or borrow more debt than you can pay back quickly so that you can maintain a low CREDIT UTILIZATION RATIO. This will help you reach a high credit score.

A good rule of thumb for revolving credit accounts is to keep your credit utilization ratio below 25%. if you have to charge one up beyond 50% of its available limit do your best to pay it down below that level as soon as possible and always try to make above your minimum payments so your balances go down.