FAQs About Payday Loans Online & Revolving Debt
Chances are that if you know about the basics of credit scores you know that your payment history is a large factor in your credit score. However, many people don’t know that the type of debt you have also played an important role in your score.
Not every debt is equal, with some having more of an impact than others. Let’s discuss two major types of debt – revolving debt and installment debt – and answer common questions that credit experts and lenders are asked.
1. Revolving Debt
Revolving debt is best known in the form of credit cards. It involves lenders pre-approving a specified credit limit, which you then borrow against. You can keep borrowing until you’ve reached your credit limit, making monthly payments.
When making payments, you will need to pay the full amount to avoid being charged interest. Interest rates vary, with some credit cards having higher interest rates while others have lower rates. For reference, the average APR throughout the nation is more than 16%, so you could find yourself paying more than you expect in interest.
This type of debt is often unsecured, which means an asset is not backing your debt as it would with a secured loan.
2. Installment Debt
Installment debt can come in many forms: payday loans online, auto loans, home equity loans, and more. You can find some of the best online payday loans from Personal Money Network while auto loans, student loans, personal loans, and other installment loan types are offered by numerous lenders throughout the United States.
Installment debts involve borrowing a fixed amount of money, which is received in one lump sum. Unlike revolving credit, these debts have a predetermined duration, so you know exactly when you should be finished with payments. They can either be secured or unsecured depending on your credit history and score.
3. What is the best credit utilization ratio?
When it involves revolving credit, one thing you need to pay attention to is your credit utilization. Credit utilization is the measure of how much of your credit limit you have borrowed, and it is one of the largest determinants of your credit score. A high utilization ratio can negatively impact your score, so it’s best to stay under 30%.
4. Which debt impacts your credit score the most?
Each type of debt is a factor in your credit score, but one can make more of a difference than another. In this case, revolving debt is a bit more significant to your score than installment debt. This is because agencies that determine credit scores use credit card debt to estimate the reliability of borrowers and the risk lenders are taking on.
5. Which debt should you pay off first?
If your goal is to increase your credit score, you should focus on eliminating or lowering credit card debt first. Credit cards have a large impact on your credit score – more than installment loans – so you will see your score rise much quicker by prioritizing revolving credit lines. You’ll also be saving money by lowering interest rates or completely paying off cards and totally eliminating interest.
6. Can installment debts pay revolving debts?
In some cases, it’s beneficial for individuals to use installment loans to pay off revolving debts, in turn making them more attractive to lenders. Consolidating your credit is also an option that can be accomplished using a personal loan, so you make a single fixed payment each month instead and have a specified repayment period.
7. What do you do when a credit card is paid off?
Once you’ve conquered your debt and have completely paid off a revolving credit line, one of the things you may consider is closing the account. However, there can be an advantage to leaving the account open once you’ve got your balance down to zero.
By maintaining the limit of the car, you are lowering credit utilization and raising your score. Be wary of annual fees, though, as some credit cards are best closed to avoid throwing money away on a credit account that you have already paid off.
Both your revolving debt and installment debt matter in terms of your credit score and history, so it’s essential to manage both of them effectively. Make payments on time, as this protects your credit score and keeps you from paying added late fees and interest. No matter what type of debt you have, paying them on time is the key to conquering your debt and increasing your credit score.
