Types of Credit and Their Influence on Your Score

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Types of Credit and Their Influence on Your Score

Your credit score is complex. Here at Credit Karma, we're committed to helping you break it down. There's always more to learn.

If you're looking to get a grip on the factors that influence your credit score, Credit Karma is a great place to start. The six elements explored there (credit card utilization, payment history, derogatory marks, age of credit history, total accounts and credit inquiries) are all vital to your credit health, and how you rank in each of these categories will go a long way to determining your score.

Still, there are other factors to keep in mind when you're thinking about your credit health, like the types of accounts you have on your credit report. A healthy mix of accounts is generally thought to be preferable to a report dominated by just one type. Read on to dig into the different types of credit accounts and how you can strategize for the best score.

Types of Accounts

There are three general categories of credit accounts: revolving, installment and open.

A revolving credit line is one that involves different payments each month, depending on how much you utilize that particular line of credit. The amount you pay is subject to a monthly minimum payment and you have the option to push the rest of what you owe to the next month, subjecting yourself to additional interest in exchange for extra time.

The most common examples of revolving accounts are credit cards. Home equity lines of credit (HELOCs), which allow you to borrow against the value of your home, also fall under this category.

As opposed to a revolving credit line, an installment account has a fixed payment due each month. The total amount borrowed with an installment account is to be paid back over a set period of time and a set amount of interest is charged over the duration of the loan.

Installment accounts include any loans on your credit report. Mortgages, auto loans, student loans, business loans and home equity loans are all paid back as part of an installment plan and fall under this category.

The final type of credit is the open account. Open accounts each have a balance that is to be paid in full every month. There is no pushing your debt to the next month, no installment payments over long periods of time and, generally, no interest charged.

Examples of open accounts include company charge cards, cell phone accounts and other home utilities. Since the balance on these accounts is typically paid in full each month and no interest is charged, these accounts will not always be present on your credit reports. Companies that choose to report open accounts generally only report them when there is a delinquent payment, but creditors may choose to report them either way.

Finding the Right Mix

This is where it gets tricky. There is no magic formula for the perfect ratio of one type of account to another, and since open accounts are not always reported to the credit bureaus, you can't rely on those being particularly useful for your credit mix. There is, though, a general consensus that a variety of revolving and installment accounts is a positive indication of responsibility and credit experience, provided you stay up-to-date on your payments.

If you have a credit profile that is dominated by credit cards and only credit cards, think about whether you're in a position to add a little variation to your finances. It's generally beneficial to have at least one or two installment loans in your credit profile. A mortgage is particularly helpful, but loans in general indicate that you have the maturity and responsibility to make steady payments over a long period of time. Having installment accounts on your credit report could also enhance your lenders' and the credit bureaus' perception of your financial experience.

Bottom Line

Reviewing your credit report details is a great way to get a handle on your credit health, but having a variety of accounts is also worth your consideration. Look over your full list of reported accounts to get a sense of what types of accounts you have open now, and then decide if you can strike a better balance. It's important to only open new accounts when you can afford them (a derogatory mark will likely do more damage than a lack of variety, after all). Still, if your report is stuffed full of credit cards and you need a new source of credit, choosing a loan instead of a credit card might be a good move next time you're in need of a new line of credit.

Account mix isn't the end-all be-all of your credit score, but it is one factor to keep in mind next time you take stock of your credit health.

About the Author: is a Content Writer at Credit Karma. Since joining the team in June 2013, he's been delivering the financial know-how on the daily. When away from work, you can find Mike watching hockey, Twittering for hours and frequenting trivia nights.

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All Comments

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1 Contribution
75 People Helped

Helpful to 75 out of 95 people

How can I get these closed accounts off my report. It's been  7-10 yrs??

Top Contributor

Reply by
TeamCKJen

366 Contributions
559 People Helped
Helpful to 69 out of 80 people

Closed accounts with negative history usually come off in seven years, but closed accounts with positive history may stay on longer for around ten years to show your creditworthiness. 

Reply by
Disabled18years

6 Contributions
50 People Helped
Helpful to 43 out of 67 people

I have read your question & the Reply. I don't understand why a PAID OFF account would be marked as NEGATIVE & remain on my report for ten year. I had 2 Bills which were paid in full. One was an Electric Bill which was overdue because I had moved and they didn't shut off my service when I informed them I was moving. It accumulated $600+ and was only closed & sent to collections when a new tenent moved in to the apartment. Once I was notified, I paid the bill in full, even though I didn't owe it since the Electric company is Equal to GOD. The Second account is for an Auto Loan which I paid off in Half the time allowed. It was a two year Loan & I paid it off without any missed payments in one year yet, it shows up as NEGATIVE.

How can I petition for these to be removed?

Reply by
617boston

1 Contribution
1 Person Helped
Helpful to 1 out of 1 people

Enter Your Reply how do I get these close accounts off my reports

1 Contribution
42 People Helped

Helpful to 42 out of 52 people

I only want 1 credit card ,is it ok to close all other cards and what effect will it have on my credit report

Credit Karma Team
Top Contributor
2949 Contributions
4643 People Helped
Helpful to 19 out of 30 people

There could be a negative impact on your score due to the reduced amount of credit available to you. Depending on your credit history, the impact may not be severe. It is impossible to say without more information. 

1 Contribution
24 People Helped

Helpful to 24 out of 33 people

How many points do hard inquiries account for? I have seven hard inquiries coming off my credit report in July.

Credit Karma Team
Top Contributor
2949 Contributions
4643 People Helped
Helpful to 15 out of 21 people

Hello!

It varies from credit report to credit report. There's no specific amount of points. 

Reply by
oldkingrat

2 Contributions
100 People Helped
Helpful to 27 out of 28 people

To: mwilson45;

I have several hard inquiries on my recent report. eg. recent opening of Amazon.com to buy books, etc. and other simliar big box stores. The thing is this....were your hard inquiries approved? I think the way to approach this is to "not" apply for the fun of it. It makes you look kind of bad overall. If all were approved, you have the hurdle of allowing then to "age" with 30 percent (or less) of limits in actual use, and never, I repeat, never make late payments. This way, over time your score/s will increase to the excellent zone and your (credit) life will be fine.

I will add this for anyone who may read this; if you do not need it, don't use it. At the same time one must keep an active payment record, over time, to prove to a creditor you are a responsible individual. One can have a high income, but with no, or little credit will be considered a bad risk. On the other hand one may have a lower income, with several accounts in good standing and have good credit. No credit with a good income = bad risk? Plenty credit with lower income = good risk?

(that is a point I still cannot fathom)   

1 Contribution
19 People Helped

Helpful to 19 out of 23 people

I want to know is it better to close off unused credit cards or keep them open even if not using them?  Will this lower or raise my credit card score?

Top Contributor

Reply by
TeamCKJen

366 Contributions
559 People Helped
Helpful to 11 out of 21 people

Hi lake20. You may find the article we wrote on how closing accounts affects your credit health useful. Check it out here: https://creditkarma.com/article/closing-accounts-credit-effects 

Reply by
Jumpshot1982

1 Contribution
13 People Helped
Helpful to 13 out of 16 people

Every credit service that I have read, says if you close your paid accounts, your credit score will go down.

3 Contributions
39 People Helped

Helpful to 38 out of 56 people

I currently have a score of 671.  According to the credit score simulator, if I took out a personal loan and paid of my credit card debts, I would have a credit score of 696.  I still would have the same amount of debt, but it would be in the form of a personal loan instead of credit cards.  I don't know why one type of debt is better than another, but it just seems to be.

Credit Karma Team
Top Contributor
2949 Contributions
4643 People Helped
Helpful to 39 out of 52 people

Hi Andrewjeanway,

Credit score changes can be very counterintuitive. Having a variety of different types of credit accounts can be beneficial to your score, however, and more lines of credit generally indicate more creditworthiness. The simulator is a usefull tool, but it is not always 100% accurate because credit scoring is so complex.

1 Contribution
19 People Helped
Helpful to 19 out of 22 people

Yes. So true. I paid off my car loan thinking it would give my score a big boost, instead it dropped two points. Paying off credit cards is THE best way to increase credit score.

2 Contributions
14 People Helped

Helpful to 11 out of 14 people

I'm wondering why Child Support shows up as a loan? It also doesn't show any consistent monthly payments. I’ve never missed a signal payment. I noticed that in reviewing my credit history, it lists Child Support as having been established 2007, when in fact it was established much earlier (2001). This takes a large amount of my income and there is no reporting shown on my Credit History of payment history and no accounting for it. Why isn’t this not taken into account other than showing my debt ratio is extended. Making the Child Support debt only a negative. I've heard that Child Support is always has negative effect on ones credit score. I also noticed that even though I’ve made consistent payments (14 years) and it shows as a loan, my credit history shows I have only 1 year and 7 months of credit history. I’m assuming that’s because of the 1 year and 7 month old credit card I have. So, Why not the Child Support?

Reply by
twitchy2

1 Contribution
14 People Helped
Helpful to 14 out of 20 people

I don't know why they show it as a negative. I'm not even quite sure why it's on a credit report to begin with. But, I would think that it would show as a positive especially after so many years of paying on it. They should reward people like you, not punish them with a lower score.

1 Contribution
8 People Helped

Helpful to 8 out of 9 people

Im looking on my full credit report.  It says I have 4 accounts.  One is a car loan.  Im not sure if im not reading this right or wrong, but if its piece of the pie, is that negative? or positive? Its under my remarks on my account?  Im confused.  Please help!

Top Contributor

Reply by
CKCharmaine

512 Contributions
1071 People Helped
Helpful to 7 out of 9 people

Hi shelbylee67, that just means that a car loan is one of your four accounts. The pie doesn't mean it's negative or positive. If you'd like a support specialist to look into your account and help clarify further, please visit https://help.creditkarma.com/hc/en-us

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

If a person paid off their house mortage, then why is this looked upon a aderogatory account. Not understanding this and yet the impact affects a person's credit score as a Negative. It is as if onr is are being penanlized & punshined for paying off their mortgage to said Banking/Mortage Institution.

1 Contribution
7 People Helped

Helpful to 7 out of 10 people

my report says I have 3 or 4 home loans, but when I moved they kept transferring my acct & I only have 1 home loan and I don't have any regular loans where it says I have 2 or 3

1 Contribution
5 People Helped

Helpful to 5 out of 7 people

My report is sayin i have 13 student loans when I only have 5. Why has this error occoured?

Top Contributor

Reply by
CKCharmaine

512 Contributions
1071 People Helped
Helpful to 6 out of 8 people

Hi knixon001, it's possible that you've run into a snag after connecting your online student loan accounts. You won't be able to match your student loan accounts to your credit report accounts: https://help.creditkarma.com/hc/en-us/articles/202041754-Can-I-match-multiple-credit-report-accounts-to-one-connected-account-

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