The Four Types of Credit

1. Installment Credit

An installment loan is a type of credit that involves making fixed monthly payments over a specified repayment term. For example, if you take out a loan with a 60-month repayment term, the lender will calculate your monthly payment based on the amount of the loan and your interest rate. You'll then make that same payment every month until the end of the loan's term.

Types of installment credit include:

• Mortgage loans
• Auto loans
• Student loans
• Personal loans
• Home equity loans

2. Revolving Credit

With revolving credit, the lender provides you with a line of credit that you can use, pay off and use again.

For example, if you have a credit card with a $5,000 limit, you can use the card to make purchases up to that limit. If you spend $3,000, you have $2,000 left in available credit. Then, if you make a payment of $1,500, your available credit increases to $3,500.

Revolving credit accounts don't have set repayment terms like installment loans. Instead, they require that you make a minimum payment every month, and you can carry the remaining balance from month to month. With credit cards, however, you can avoid paying interest by paying your bill in full each month by the due date.

Types of revolving credit include:

• Credit cards
• Personal lines of credit
• Home equity lines of credit

3. Charge Cards

Charge cards look and generally function like traditional credit cards, with one big difference: Instead of allowing you to carry a portion of your balance from month to month, charge cards require full payment after each billing cycle, which usually lasts a month.

In exchange, you don't have to worry about interest charges—though you may be charged a sizable late fee if you don't pay your bill by its monthly due date.

4. Service Credit

When you sign up for a gym membership or open an account with a utility company or wireless service provider, you make payments to continue taking advantage of the service you're receiving.

Which Are Necessary to Build Credit?

Having these types of credit—and managing your accounts responsibly—can help you build credit. But you don't necessarily need to carry all of them to have a good credit score. When just starting out, for instance, you may have just one credit card and one student loan, and then you might build from there.

As you take natural steps to buy a new car, purchase a home or take advantage of new credit card benefits, adding more credit accounts can continue to help you build a positive credit history.

Above all else, it's important to pay your bills on time and keep revolving card balances low to build your credit scores. And with service credit accounts, Experian Boost^®ø can help you get credit for your on-time payments on cellphone and utility accounts—and even with some subscription services—to help increase your FICO® Score powered by Experian.