Have you ever experienced trying to crack the code of what has made your credit score appear the way it has? This is because the credit profile that you hold is not affected by how much you owe or how promptly you meet your financiers but also by the type of credit that you employ. In Personal Finance, it is imperative to know about the 4 types of credit that helps in creating a healthy credit mix, enhancing credit worthiness, and more intelligent borrowing solutions.
In our blog we deconstruct the four major forms of credit, the mechanics and what you need to know before you plan to borrow.
Revolving Credit: Your Financial Swiss Army Knife
Revolving credit provides a set amount you can borrow, repay and reborrow like an overdraft or credit card. It can be imagined to be a magical wallet of finances that fills up whenever payments are made. This plasticity is an awesome tool but it is also as a possibility of overspending and getting into the high-interest traps.
Why is it a game-changer?
Eligible account holders are given constant access to funds in line with their credit limit- spend, pay and swipe again, hustle free (Investopedia). Common examples: Credit cards, personal lines of credit, HELOCs, and overdraft facilities .
How does it impacts your credit?
Establish credit, with time, assuming that you can maintain utilisation below 30 per cent and always pay on time. According to the experts, a reward or reward higher than 30% can put a ding on your score, whereas being below this will give you a spotlight (NerdWallet).
Interest is charged on only the amount you leave over, and not on the limit, repayment on time = minimal-cost (Experian).
Pro tips to maximise value:
- Stay under 30% utilization—bonus points if you’re around 10% (AFBank, Chase, Capital One).
- Pay more than the minimum, ideally the full statement balance, to avoid interest (Investopedia, Capital One, Investopedia).
- Keep older cards open to preserve your total credit limit and avoid raising your utilization ratio (Navy Federal Credit Union, Chase, Jenius Bank).
Instalment Credit: Your Credit-Building Power Tool
Installment credit allows you to take out a fixed amount and be repaid in installments over a fixed amount of time and when it is repaid the account is closed (NerdWallet).
· Examples; Home loans, car loans, personal loans, education loans
· Credit Impact: Payments on time will raise your score and delayed payments can cause your score to be damaged (Experian).
Why It Matters
Putting credit on installment makes it easier to budget as you will make the same payment monthly which will enable you to plan confidently (NWI.Life).
· Score Booster: Regular, on‑time payments contribute heavily to payment history—35% of your FICO score (Bankrate).
· Better Credit Mix: Adding an installment loan alongside credit cards improves credit diversity—worth about 10% of your FICO score (MyFico) .
What to Watch Out For
· Late payments will hurt you.
· Small, temporary dip can be created by hard inquiries.
· Average account age can be decreased by closed accounts .
Pro Tips to Maximize Benefit
· Pay in time and fully as much as you can, this is to avoid extra interests and penalties.
· You can have an installment account to have a diversified profile.
TL;DR : Installment credit is smart stuff; use it to electrify your financial future!
Open Credit: Pay in Full, or Pay the Price!
Open credit (sometimes referred known as charge credit) is used to obtain money up to the stipulated limit but on condition that what was borrowed must be paid in full by the assigned date. It has no minimum payments, or revolving balance it is all or nothing. India does not have much use of it, but you will find that in corporate charge cards, and utility accounts.
· Examples: Corporate charge cards, utility accounts with pay-on-demand terms
· Impact for Credit: This major is an indicator of responsible financial management, on-time payments, and you score. Fall short of deadline; that goes bottom with its nose.
Service Credit — The Everyday Credit That Matters
An example of a credit that you do not notice is service credit, until it bites you. It is the plan that allows you to have a service, and pay later, such as your mobile phone, electricity, water or internet. Although this is not your common loan, it has a significant impact in your financial portfolio.
· Mobile postpaid bills, payments to utilities, subscription services (Netflix, Spotify, and so on).
· The Influence on Credit: Timely payments are not usually reported. What then do they do? They do not increase your score that much. However, defaulted or late payments can be sent to the collections and, later, they will fall on your credit report and seriously affect your rating (Apnews).
Getting to Grips with Credit: What’s What
| Type of Credit | Examples | Key Feature | Credit Impact |
| Revolving Credit | Credit cards, overdrafts, credit lines | Flexible borrowing up to a limit | Helps build credit; watch utilization |
| Installment Credit | Home loans, personal loans, car loans | Fixed loan repaid via EMIs over time | Shows repayment discipline |
| Open Credit | Charge cards, corporate accounts | Full balance due each cycle; no carryover | Encourages timely repayment |
| Service Credit | Utilities, phone bills, subscriptions | Pay for services after use | Missed payments can hurt your credit |
Why Does Credit Mix Matter?
When lenders consider you creditworthy they do not focus merely on your debt level, but on the type of credit you have and how well you are utilizing it. A balanced mixture is an indicator of financial stability and flexibility. Actually overall credit score is affected by your credit mix at about 10% of the whole score (Livemint and Kotak811).
TIP: You may assume that you might have all-credit cards anyway, but you should consider using some cup to diversify the portrait, but do not exceed your capacity (you can have a small installment loan). And forget small service accounts, too-any time you pay on time it piles up.
How to Manage Different Types of Credit Wisely
· Revolving Credit: Do not charge the balances to the limits and then be sure to never be late in payment.
· Installment Credit: Never miss payments of EMIs. It may be particularly simpler when it comes with pre-arrangement payment.
· Open Credit: Paying your Account on time. This acts as a sign of financial prudence and prevents fines.
· Service Credit: Pay utility, phone and subscription as mortgage or car payment. Soy-staying at the top supports the protection of your mark.
The Bottom Line
Credit score is not just a figure, but rather it is an indicator of money-management. Maintaining and exposing yourself to the 4 forms of credit available revolving, installment, open and service will make you a more intelligent borrower and will give you more freedom on financial decisions. Treat them responsibly and you will have access to better terms of borrowing a loan, increased limits and a more secure future financially, just what you need by achieving your goals.
