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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. SHARE: PeopleImages / E+ / Getty Images April 22, 2021 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring, and debt-related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK. Poonkulali Thangavelu is a senior writer and columnist at CreditCards.com and Bankrate, addressing debt and credit card-related legal and regulatory issues. Bankrate logo

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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. We spend a lot of time in this column talking about credit scores and how they work. This week we are going to look at revolving credit with an emphasis on credit cards and see what they mean to your credit score.

What is revolving credit

Revolving credit, also known as open-end credit, is how most credit cards work. There are other types of credit that count as revolving (like credit lines), but cards are the most common type. You’re granted an amount of credit, with a limit say of $5,000. It’s yours to use any way you want. You choose how much of the limit to use at any given point in time. As you use the card, you must make payments on time and for the amount agreed. As you make payments, the amount that goes to principal recharges the line. You can pay off the entire amount, restoring the line to its original and full amount, or you can just pay what your spending plan will allow, or even make just the minimum payment. You get to decide.

Revolving credit vs installment credit

This arrangement differs from installment credit in several ways. Installment credit (closed-end credit) is frequently used by department and furniture stores, in addition to mortgages, car and student loans. This type of credit involves loaning an amount equal to the specific amount of a purchase that you repay in fixed installments. One major distinction to remember about installment credit is that it is a one-time thing. Your loan, once repaid, cannot be tapped again. While you may get another loan from the same creditor, it won’t be a continuation of the first loan but will be a new loan altogether. Before concentrating on just credit cards, let me say that having different types of credit counts in the scoring category called . This factor makes up about 10 percent of your . While that may not seem like much, you should know that if your file is “thin” (meaning you don’t have a lot of information in your credit file), this factor can make more of a difference. And when it comes to your , credit mix is combined with credit age (or experience) and is considered “highly influential” in its scoring matrix. So, this is not a factor that should be discounted or dismissed. Credit mix looks at what types of credit you have; having a healthy mix is what is best for your credit score. To understand this, recall that there are two main types of credit—installment and revolving. Demonstrating an ability to handle both variable (revolving) and fixed (installment) payment types of credit responsibly is what the credit scoring elves are looking at when they evaluate your credit mix. Showing you can keep up with both types of payments every month will give you the most points in this category.

How does revolving credit affect your credit score

Credit card purchases have a direct impact on the portion of your score. This factor is second only to payment history in importance to your FICO score (worth about 30 percent) and is “extremely influential” to your VantageScore. Credit utilization looks at how much of your available credit you have used. As noted above, you have the choice of how much you will pay on your credit cards each month, but you do need to know how that decision will affect your utilization factor and overall score. Installment loans do not affect credit utilization because your loan is for a specific amount and, as also noted above, you cannot access the funds again. This is actually one of the selling points of an installment loan to . If you can obtain a loan with a lower interest rate than your credit card(s), you will immediately lower your credit utilization ratio, as long as you don’t close those credit card accounts. If you close your cards, you may increase your credit utilization and lower your score. To quickly determine this percentage for yourself, check out .

How to use revolving credit without hurting your score

Revolving credit, like credit cards, can certainly hurt your credit score if it is not used wisely. However, having credit cards can be great for your score if you manage both credit utilization and credit mix to your best advantage. The trick is to figure out the best way to use the credit cards you have so that you not only don’t hurt your score, but boost it as well. You do this first by making your payments on time, as agreed, each and every month. You also keep an eye on where your cards are in terms of available credit and how much you have used. I recommend never going beyond 25 percent of any card’s credit limit. The lower you can go, the better it will be for both your score and your overall financial health. People with great credit scores tend to have utilization ratios in the single digits. If you have multiple cards, consider paying one or two just before your statement closes, or at least sooner than the due date. Issuers tend to report account information around the time the billing statement closes, so getting your credit utilization as low as it can be around this time will help your score.

The bottom line

Both installment and revolving credit have a place in helping you achieve the credit score you want. Showing you can responsibly handle both types will put you well on your way to that goal. Good luck! SHARE: Steve Bucci has been helping people decode and master personal finance issues for more than 20 years. He is the author of “Credit Management Kit For Dummies,” “Credit Repair Kit For Dummies,” “Barnes and Noble Debt Management,” co-author of “Managing Your Money All-In-One For Dummies” and “Debt Repair Kit For Dummies” (Australia). Steve is an experienced expert witness in identity theft, credit scoring, and debt-related cases. He has been a presenter at the FICO InterACT Global Conference, the Federal Reserve and the International Credit Symposium at Cambridge University in the UK. Poonkulali Thangavelu is a senior writer and columnist at CreditCards.com and Bankrate, addressing debt and credit card-related legal and regulatory issues.

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