What Accounts Raise Your Credit Score?

How to demonstrate that you can handle different kinds of credit responsibly.

Laura Adams, MBA,
April 12, 2012

Q. I want to buy a home, but my credit score is too low. My credit report shows a late payment; however, it’s an error and I’m getting it corrected. Two different lenders told me that my credit would improve if I had one or two open lines of credit. I have a car loan—why isn’t that enough?

A. Having an error on your credit report will certainly damage your credit—that’s why checking your report at annualcreditreport.com on a regular basis is very important. After the late payment is removed, you should see your credit score go up.

Another factor that determines your credit score is the number and types of accounts you have. Here are the 2 types of credit accounts:

  1. Revolving debt: An agreement for a maximum loan amount on a product like a credit card, retail store card, or line of credit. You’re given a credit limit and can use any amount of it as long as you make minimum monthly payments. Revolving debt has no loan term or final due date.

  2. Installment debt: An agreement for a specific loan amount on a product like a mortgage, car loan, or student loan. You receive the full amount upfront with the condition that you make regular payments until the original loan amount and interest is paid in full.

Having both types (and making timely payments) will raise your credit score because it gives you a richer credit history and demonstrates that you can handle different kinds of credit responsibly.

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