There Are Different Types of Credit?

YES.

The lending industry has as many types of credit as there are types of loans and collateral. For your consumer credit report we will concentrate on three main types of credit:

• Real Estate Loans
• Installment Loans
• Revolving Credit Loans

Real Estate Loans

These are different types of mortgages for land or property, excluding HELOCs (Home Equity Lines of Credit). HELOCs are considered revolving credit, which we’ll cover below.

Installment Loans

These are loans you repay over time with a set number of payments. Examples include auto loans or personal loans. Some are secured by collateral, some are not. This is the classic loan. You borrow a set amount of money to be paid off over a predetermined period of time with a set amount of payments and then it is over forever.

Revolving Credit Loans

This type of credit is where many people run into trouble.

A typical example is a credit card or store card. You’re given a credit limit, borrow up to that limit, pay it down, and borrow again—like a revolving door.

A Home Equity Line of Credit (HELOC) is also a revolving loan but it uses your home’s equity as collateral. Most revolving credit is like a credit card in thast it does not have collateral. Revolving credit has unique reporting rules and heavily affects your credit score through the Credit Utilization Ratio.

Learn More: Credit Utilization Ratio

Important Information

Revolving credit accounts are more important than many people realize. The number of accounts and how long you’ve had them impact your credit score and eligibility for certain loans. For example, many real estate loans require at least two seasoned revolving credit accounts (24+ months old).

Too many or too few revolving accounts can negatively affect your score. Avoid applying for every card you see. Keep balances below 50% of the available limit to prevent your score from dropping, even if you pay on time.

Revolving credit can feel unfair, but learning to manage it wisely will protect your credit and help you achieve financial freedom.

Remember

Pay your bills on time and avoid borrowing more than you can repay. Keep a low credit utilization ratio—ideally under 25%. If you need to charge a card above 50% of its limit, pay it down quickly and make more than the minimum payment whenever possible. This will help maintain a high credit score.