In the eyes of credit scoring companies, not all debt is created equal.
There are different types of debt, and some can do considerable damage to your credit rating.
Installment loans are not harmful to your credit rating as long as you always pay on time.
Installment loans are the type of loan where you borrow a fixed amount, and pay it back over a fixed period of time. For instance, a 30 year mortgage, or a 5 year car loan.
Both of those loans are also considered secured loans, because if you do not pay them back the bank or the car company can take back the property.
Revolving loans are much worse for your credit. credit cards are the most common kind of revolving loans.
With credit cards, the interest rate is higher because there is no security for the lender – they can’t come and repossess that expensive dinner you charged, or foreclosure on the sweaters that you bought or the vacation that you went on.
Also, the amount that is owed on a credit card varies month by month and you always have the ability to run your credit cards up to the limit (which is terrible for your credit). And people are more likely to default on credit card loans than they are on home loans or car loans – so credit card loans are considered riskier by credit scoring agencies.
If you must have a credit card, make sure that you do not have a balance that is more than 30 percent of your total credit line, and ALWAYS pay your bill on time – paying late even once can send your score plummeting.
