There are numerous types of credit that can have an effect on your credit report and credit score, which will determine the future credit, terms and interest rates you can obtain. There are so many ways you can finance, borrow, or secure credit from a creditor that it can seem overwhelming. But overall, the types of credit that have an effect on your credit score can be classified as either revolving or installment (see “Other Types of Credit” for other factors related to forms of credit).

Revolving credit includes any type of credit card, retail credit card, overdraft protection, some personal loans, or other unsecured credit lines that allow you to access all or part of a credit limit amount providing some flexibility in repayment. Monthly payments can be the entire amount borrowed, or for partial payments at or above the minimum payment set as part of the credit terms when the revolving credit account was open. In order to open a revolving credit account, a creditor will review your creditworthiness via your credit report and credit score. This review will also have an effect on your creditworthiness, though minor (see “How Credit is Tracked”).

Credit cards are probably the most widely used form of revolving credit---and potentially the most risky. Depending on the terms of the credit card account, there may be fluctuations in the interest rate charged, annual fees for simply having and using the credit card account, as well as numerous late or extraneous fees. All of these can be affected by not only your current creditworthiness, but your payment history with the creditor with whom you have the credit card account as well also your payment history with other creditors. For example, if you miss a payment with one creditor and your interest rate increases on that account as a result, other creditors will discover this information on your credit report and can also increase the interest rate that they charge.

With revolving credit, it is important to maintain a low debt-to-value ratio. This is the ratio that shows how much credit you are actually using as opposed to what you have available, and does have an effect on your credit score (see “Developing Good Credit”).

Installment credit includes car loans, financed jewelry, furniture, technology or appliance purchases, home loans, or other personal loans. Basically, an amount of money is borrowed in order to pay for items, property, or education you could not otherwise pay for with cash. You are then required to pay back the entire amount borrowed in regular payments that include a portion of the amount borrowed and interest that is calculated from either a fixed or variable interest rate. Depending on what is purchased, a down payment may be necessary to obtain credit. Other than federal student loans, your credit rating will be reviewed in order to determine loan terms. Installment loans are for the most part considered secured by the personal property that the financing was used to purchase. For example, your vehicle serves as collateral and secures the loan for the lender. This provides the lender with some recourse (i.e. repossession) should you, the borrower, default on the loan.

Like any form of credit, it is vitally important that installment payments are made on time, as you will develop either good or bad payment history based on this performance. Payment history has the greatest effect on your credit score constituting approximately 35% of the total score, (see www.myfico.com). Additionally, installment credit is way of developing long-term credit history with creditors; this is another factor that plays into your creditworthiness. This will be discussed in “How Credit Is Tracked”.