Heal an ailing credit score

by Judy Stringer

Poor credit can be a significant source of stress. Worrying about debt, late payments and potential collections takes a toll on mental and physical health, and the chronic stress can lead to high blood pressure, heart disease and even depression.

Whether you’ve already begun building a stronger credit portfolio or you’re wondering how to get started, take a few minutes to consider how a “credit mix” – or the different types of credit accounts you own – may affect your credit score.

Credit bureau Equifax lists the four different types of credit accounts found on its credit reports as:

Installment loans

An installment loan is a loan that’s paid back, generally with interest, through regular payments over a period of time, and the payment amount typically stays the same. When the loan is repaid, the account is closed. An example of an installment loan would be an auto loan.

Revolving debt  

With revolving debt, users borrow money up to a certain amount (a credit limit) and pay it back, or pay a minimum payment – generally with interest – while carrying a balance. The amount owed can also be paid in full each month to avoid interest charges. Once that amount has been paid back, it is then available to be borrowed again. An example of revolving debt would be credit cards or lines of credit.

Mortgage accounts

Mortgage accounts may differ from other types of installment loans, as the interest rate can be fixed or variable. Fixed interest rates stay the same, while variable interest rates may change.

Open accounts

In these types of accounts, the balance is due to be paid in full each month. One example is a credit card that requires payment of the balance in full each month, rather than allowing you to pay over time. Another example of an open account would be a collection account where the entire past due amount is due in full.

According to Equifax, successfully maintaining a diverse mix of credit types may positively impact your credit scores.

“That doesn’t mean that you should open credit accounts you don’t need,” the Equifax website said, “Instead, you might want to think twice about closing a paid-off credit card account, since doing so might have a negative impact on your credit scores for several reasons.”

For more information and tips on credit building, visit equifax.com. ∞