Credit Cards BEFORE Installment Loans
Posted on January 24, 2020
The two types of debt that matter for your credit score are INSTALLMENT and REVOLVING loans. Understanding what they tell a credit bureau about your credit worthiness can help you understand why your should start paying down your revolving loans FIRST.
➡️A loan which allows you to borrow a SET AMOUNT of money when you take out a loan. You will then have to repay the loan over a FIXED PERIOD of time.
➡️Ex: Auto loan, mortgage loan, personal loan
➡️A loan issued by a financial institution that allows the FLEXIBILITY of withdrawing money, repaying, and withdrawing again.
➡️Ex: Credit cards, personal/business lines of credit
Based on last week’s discussion we already know that your credit score consists of:
➡️ Your Payment History➡️ Amounts Owed➡️ Length of Credit History➡️New Credit➡️Your Credit Mix
The different loan types provide the credit bureaus with DIFFERENT INFORMATION about your credit worthiness. An Installment Loan provides information on your payment history and whether you can make your payments every month. However, your revolving loans prove both your PAYMENT HISTORY and your CREDIT UTILIZATION, which gives a greater impact on your overall credit score.
If you are looking to boost your score by making additional payments towards your overall debts every month it is better to focus your efforts on paying down your REVOLVING debts to 30% or below of your available credit for a bigger impact!
If you’d like to talk about the impact paying down your debt has on purchasing a home COMMENT DOWN BELOW!