Is Revolving Debt or Installment Loans Better for Your Credit

There are several types of loans available, with installment loans and revolving debt or revolving credit accounts being two of them. A big determining factor of being able to obtain either is your credit score. It is important to discuss your credit report with a financial advisor or credit counselor if you have a few blemishes. This will help you to re-establish yourself and determine which of these two loan types is best for your needs.

Installment Loan Basics

Installment loan amounts are determined based upon your credit score. Your income also plays a factor in this as you must have the ability to make the payments, plus interest. These are a good option when you need to make a large purchase such as a home or vehicle, or if you require home renovations. Installment loans are also available for a variety of personal reasons. The reason for the loan does play a small role in the determination of acceptance or not.

Revolving Debt Basics

Revolving debt, or lines of credit as it is commonly referred to, is ideal for persons with less than perfect credit. With this type of loan, you are not limited to a specific amount, you will have limits, but it is different than an installment loan. An example of revolving debt is credit cards. You do have a spending limit but you make purchases as needed, pay it off and continue to use the credit.

Which is better?

Installment loans are actually better for most consumers. This is because there is a set limit and a set payment schedule. Revolving credit is basically credit that is reusable as long as it is not at the limit. This creates more debt due to interest charges and other fees that apply. An installment loan puts a percentage of your payment toward the principal and a percentage toward the interest. The terms on installment loans are also much longer than revolving debt where interest continues to pile up.

Consumers have to make smart choices when it comes to money. This is because credit cards rack up hundreds of dollars in interest over the course of a year, depending on your assigned interest rate. These often cause financial trouble whereas there are more options for reconciliation with installment loans. Creditors are more willing to work with borrowers on installment loans, such as deferring a payment during a time of financial crisis.

About Jen Perkins

Likes: saving money, being debt free (aside from our house), zombies, travel, getting money, blogging and dogs. Dislikes: debt, being broke, bunnies, wasting money, not having enough money to travel the world and paying interest. Facebook  ♥  Twitter  ♥  Google+  ♥  RSS

Comments

Is Revolving Debt or Installment Loans Better for Your Credit — 3 Comments

  1. As a consumer lawyer that helps folks manage rebuilding credit scores after a bankruptcy, I wanted to voice my agreement with your post. Credit scores simply provide a numerical description of one’s ability to manage credit, and the best way to demonstrate the ability to manage credit is to have available both revolving and installment accounts. Great post!
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  2. I have both (revolving and installment), but I am very careful with my use of credit cards and try to keep the utilization between 0-30%