Types Of Credit
It is important to understand the different types of credit, how they report, and how they impact credit score. There are four major types of credit: installment credit, revolving credit, mortgage credit, and other credit. They are denoted on credit files with an “I” for installment credit, “R” for revolving credit, “M” for mortgage credit, and “O” for other credit. Following the denotation, there will also be a number. This number indicates the current status of that tradeline.
0: account is too new to rate as no payments have yet been required
1: currently up to date
2: 1 payment currently in arrears
3: 2 payments currently in arrears and so on
7: trade line was included in a bankruptcy or a consumer proposal
8: repossession (applicable on auto loans)
9: account has been written off and in bad standing
Installment credit refers to anything you obtain credit and have to pay it back in payments without the ability to re-use funds put towards the loan. This can be an auto loan, a personal loan, or many other forms of borrowing that involve a structure repayment. These accounts generally have more weight on impacting a credit score than the other forms of credit.
Revolving accounts include any account that requires a monthly payment but remains open to withdrawn funds against it. Commonly, these are credit cards and lines of credit.
Mortgage accounts are mortgages taken to purchase property.
Other accounts are forms of credit that don’t fall into any of the other categories because they have no credit limit or no initial amount was advanced to be repaid. For instance, some insurance companies will report to credit files using this category. The most typical form of credit using this category is cell phone accounts.