In order to have a great credit score, it is important to mix up your credit. While using credit cards will build your credit score, it will only go so far. The 3 major credit bureaus- Experian, Equifax, and TransUnion- take into account both revolving credit and installment credit when determining your FICO credit score.
Credit cards are a type of revolving credit. With revolving credit, there are no fixed amounts of payments and the length of credit is ongoing and indefinite. It is an open-ended credit line that you can use to borrow money each month. But, it is important to have some installment credit as well. By having both revolving and installment credit, lenders will see you as more financially responsible, thus resulting in a higher credit score. Installment credit is a type of credit where the consumer borrows a set amount of money and agrees to pay it back over a fixed period of time. The payments are the same amount each month. Examples of installment credit are car loans, mortgages, student loans, and rental contracts.
So, if you want to have a good credit score, low interest rates, and a higher likelihood of loan approval, use a mix of revolving and installment credit. You will then be less risky and more financial savvy!
