Tradelines: Difference between revolving and installment accounts.
A lot of clients contacting Tradeline Broker or other reliable tradeline companies ask about primary tradelines, installment tradelines vs. authorized user or seasoned tradelines.
We share a fairly consistent answer… there is no point in adding an installment line and seasoned primary lines do not exist. Those two statements needs discussed in more detail, but in this article, we are only going to focus on revolving vs. installment debt. Or, in this case, choosing which type of debt is best to add to your credit report in terms of boosting your credit score.
Defining revolving vs. installment debt is a must.
According to Investopdeia, installment debt is “Debt issued with the condition of regularly occurring intervals for payment by the debtor, until the principal and interest are paid in full.” Whereas, revolving debt is, according to Lending Tree is “Revolving debt typically has a variable interest rate, an open-ended term and payments that are based on a percentage of the balance.” In a nut shell, installments are card notes, mortgages, personal lines of credit, prime equity lines, etc. And, revolving are credit cards, some store credit cards, etc.
Trustworthy opinions regarding installment vs revolving debt, and which one has a large impact on your credit score.
According to a Senior Contributor of the Fico Forums at myfico.com, “Installement loans do have balance-to-original loan amount ratios which affect your score. However, it does not affect it nearly as much as CC utilization percentages.” Just for the record, “CC” means credit card, if you were wondering. Credit Cards specifically means revolving accounts.
Another Senior Contributor wrote “You will save money paying off the higher interest installment loans but it won’t do anything for your score. Depending upon where you end up on your revolving utilization number of accounts with balances … scores would improve by paying down credit card debt.”
FICO likes to keep their algorithm secret, but they release enough information to read between the lines.
Under the FICO® Risk Score Reason Codes, there are 38 entries for revolving accounts and only 11 regarding installment. The installment entries mainly discuss a “lack of” installment accounts, which only contributes to the 10% of portion of the score of “types of credit used”. On the other hand, the 38 revolving codes consider a wide range of aspects including available credit, credit owed, age of accounts, payment history, etc. In short, revolving tradelines affect almost every aspect of your overall credit score… especially that 35% chuck call “payment history”.
If you are going to purchase tradelines to boost your score, make sure they are revolving credit lines.
As evidenced above, it simply makes no sense to add installment lines of credit to your credit report in order to boost your credit score. Revolving account, such as the authorized user tradelines or seasoned tradelines we sell, can be added to your credit report within 15 to 45 days and can drastically increase your credit score.