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What are the Different Types of Credit?

6 min read

Last Updated: March 5, 2026

Table of contents

Key Takeaways

Credit is an agreement between you and a lender that lets you borrow money and repay it later according to the terms of your contract.
The three main types of credit are revolving, installment, and open credit.
Responsibly managing several types of credit accounts at once can help improve your credit score.

If you’ve bought a new car, purchased a home, or attended college, you’ve probably used a form of credit, even if you’ve never swiped a credit card. Any time you borrow money and agree to repay it later, you’re using credit. As you use credit, you may build credit history and establish a credit score.

While lenders offer varying products and services, there are three main types of credit: revolving, installment, and open credit. Understanding how each type of credit works may help you make informed financial decisions and improve your credit mix, which might help raise your credit score.

What is revolving credit?

With a revolving credit account, you may borrow money whenever you need it, up to a certain amount (your available credit limit). Lenders set specific credit limits for revolving accounts. They may use factors like your income and credit score to determine your credit limit. If you hit your account’s limit, you must repay a portion of your balance before accessing more funds.

Revolving credit typically has flexible repayment options. At the end of each billing cycle, you may pay any amount up to the total balance you’ve accrued or as little as the minimum monthly payment. However, your credit issuer may charge you interest if you don’t pay the entire balance on the due date.

Examples of revolving credit

Revolving credit includes:

Lines of credit: A line of credit is a loan with a pre-approved limit that you may access as needed during a set drawing or borrowing period. Banks, lenders, and retailers may provide lines of credit.
Home equity line of credit (HELOC): A HELOC works like other lines of credit, but it requires your home as collateral. Your equity is the value of your home minus anything you owe. If you miss payments, your lender may foreclose on your home.
Credit cards: Credit cards are the most common example of revolving credit. With a credit card, you could borrow up to a set credit limit. As you repay your balance, you restore your available credit.

Did you know?

Many credit cards allow you to earn back a portion of your everyday purchases as cash back or another reward. You may redeem the rewards you earn for statement credits, gift cards, or cash, depending on your card issuer.

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How does revolving credit affect your credit score?

The way you manage your revolving credit accounts may have a big effect on your credit score. These accounts impact your payment history, credit utilization ratio, age of accounts, and credit mix. You may improve your credit score by keeping your balances low and making payments on time each month. As your credit limit increases, your credit utilization ratio should decrease, which might also help your score.

What is installment credit?

With installment credit accounts, you borrow a lump sum from a lender, usually for a specific purpose such as buying a car. You and your lender agree to a set of terms, including a repayment schedule.

Typically, you pay the same amount each billing period until you pay the balance in full. As with revolving credit, you have to pay interest on what you borrow. But unlike revolving credit, after you pay the full balance of the loan, your lender will close your account.

Examples of installment credit

Secured and unsecured loans are typical examples of installment credit. Many installment loan products are available to serve different needs:

Auto loans: An auto loan finances the purchase of a vehicle. The vehicle may act as collateral.
Mortgages: Mortgages help you purchase a home or other real estate. Typically, the property itself acts as collateral. Terms may last decades.
Student loans: Student loans cover educational expenses like college tuition, room, and board. Repayment usually starts after graduation.
Personal loans: Personal loans are more general-purpose than the other examples. You may use a personal loan to consolidate debt or make a major purchase.

How does installment credit affect your credit score?

When you take out an installment loan, you increase your total debt. Increasing your debt-to-income ratio may potentially hurt your credit score. However, an installment loan may also help you build a positive payment history if you always pay on time.

What is open credit?

Open credit, also called “open-end credit,” works like a revolving credit account, but without the ability to carry a balance from month to month. You may borrow from an open credit account throughout your billing period. But at the end of each billing cycle, you have to repay the entire amount you’ve borrowed.

Some forms of open credit also differ from credit cards in that borrowers don’t have to stick to a set credit limit. Instead, your spending capacity changes based on your credit usage and payment history.

Examples of open credit

Open credit may be more common for business credit accounts than personal ones. If you’re interested in a personal open credit account, you may want to look at charge cards. The Federal Trade Commission explains that charge cards work like credit cards, except that you’re required to pay them off in full every month.

How does open credit affect your credit score?

Open credit accounts may impact your credit score in a few ways. You can build or maintain a positive payment history by repaying your bill in full each month. Because you can’t typically carry a balance on your open credit accounts, they can also help you maintain a low credit utilization ratio.

What is a credit mix?

Your credit mix refers to the variety of types of credit accounts in your credit history. Building a varied credit mix is important because it factors into your credit score. Credit mix accounts for about 10% of your FICO^® Credit Score.¹ You may see a bump in your credit score if you manage multiple types of credit accounts.

A diverse credit mix shows lenders that you have the experience and knowledge to handle different types of debt responsibly. If you’ve mostly had installment or open credit in the past, then a credit card that meets your needs may improve your credit mix.

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The bottom line

Financial institutions offer a wide range of credit card and loan products. Understanding the different types of credit may help you find the right tool for the job when you need to borrow money.

A blend of revolving, installment, and open credit accounts may improve your credit score when used responsibly. But it’s not enough to open several different types of credit accounts. To maintain a strong credit score, you have to manage those accounts responsibly.

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