Revolving Vs Installment Accounts

More details of this section are in my book so here is a nice plug for myself and the book.

It is when you have certain dollar amount divided by a certain time frame so you know exactly the amount owed every month (not counting late fees).
Ex: car loan, mortgage and student loans

This type of account effects your credit score more than an installment account. A revolving account is exactly what it sounds like, an account that is constantly changing just like a revolving door. The obvious example is a credit card, every month the balance or monthly payment changes.


Since your credit score has way too many variables to give specific advice to enhance a consumer score to its greatest potential a solid good rule of thumb is having two or three revolving account for every installment account.
Note: having student loans in deferment do not count.

Check your credit report online to see the status of your accounts. Look for late payments, high balances and signs of identity theft. As a bonus, checking your credit report can save you some research time by providing you with contact information for each of your creditors.

Keep four to six credit accounts open. This will keep your credit score and debt balances healthy. Signs of active and responsible credit use are viewed positively by creditors.

Designate one card for regular use and try to pay the balance in-full each month. Reserve the other cards for emergencies only so that you are not tempted to overspend.

Don’t close the oldest account on your credit report. This could cause your credit history to appear shorter and could harm your credit score.

Don’t just throw away old cards and expect your accounts to close automatically. The safest way to close an account is to send a certified letter to the customer service department of the credit company. You should receive an account closing confirmation letter in 10 days.

You shouldn’t be pressured to cancel several accounts all at once. Gradually paying down and closing accounts may be the best plan if you are unsure about the impact on your credit score or the amount of debt you need to carry. If you want to cancel numerous credit accounts, spacing the closures over time will reduce the chance of attracting negative suspicion from potential creditors.

Avoid over-consolidating balances onto one card. If your credit balances rise to above 35% of your available limits, you may see a drop in your credit score.

Don’t forget to check your credit report for updates and errors after you close your credit accounts. Wait 30-60 days for the creditor to report the closed account and the credit reporting agencies to update your records. While the accounts and their payment histories will stay on your report for 7 or more years, they should be marked as “closed.”

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