Different Types of Credit
8 Min Read | Published: April 25, 2025
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Learn about common types of credit, how they work, and which credit account types can positively impact your credit score and financial future.
At-A-Glance
- Four common types of credit include revolving credit, such as credit cards; installment credit, like mortgages and car loans; home equity loans; and charge cards.
- Each credit type can impact key credit score factors like payment history, credit utilization, and credit mix.
- Checking in on your credit report can help you identify mistakes and detect suspicious activity across your different credit accounts.
There are different types of credit for different financial needs, from everyday expenses like groceries, gas, and dining out to bigger purchases over longer terms, like mortgage and car payments. The right kinds of credit for you depends on your credit goals and your lifestyle, but each type can offer unique advantages for improving your financial standing.
What Are the Main Types of Credit?
- Revolving Credit
Credit Cards are a widely-used form of revolving credit, serving as a reusable loan with a set limit you can borrow from as needed. If your credit card has a limit of $4,000 and you spend $200, you can continue borrowing up to $3,800, given that you make minimum monthly payments. It’s important to understand that unpaid balances almost always accrue interest you must repay.1 - Installment Credit
Car loans, personal loans, and mortgages are typical examples of installment credit, a fixed amount of money you borrow and repay in equal payments over a set time.2 If you have a $30,000 loan for a new car, you might receive a lump $30,000 sum from your bank and agree to pay $500 each month until you settle the debt. Installment loans fall under the secure loan umbrella, so borrowers know how much they owe and for how long.3 - Home Equity Loans (HEL) and Home Equity Lines of Credit (HELOC)
Home Equity Lines of Credit (HELOC) are like credit cards, but your home’s value sets the limit.4 To calculate the borrowing limit, you subtract the amount you owe on your home from its total worth and typically only pay interest on what you borrow.5 People often use a HELOC to finance home repairs, consolidate debt, or cover other large expenses.6
A home equity loan (HEL) is a lump sum of money you borrow against your home’s value.7 Unlike a HELOC, where you borrow as needed, a HEL gives you all the money at once and requires fixed monthly payments with an installment credit structure. Sometimes, when people say they’re taking out a second mortgage, they’re often referring to a HEL or a HELOC.8 - Charge Cards
Charge cards work like credit cards, but with one important difference: you must pay the full balance every month.9 Charge cards do not allow you to carry balances, helping you avoid interest charges while encouraging careful budgeting.
Which Types of Credit Are Open-End?
Open-end and closed-end credit are two different, broader credit type categorizations:10
- Open-end credit lets you borrow, repay, and borrow up to a set limit, making it useful for ongoing expenses. Credit and charge cards fall into this category.
- Closed-end credit is a one-time, fixed-amount loan that you repay over a set period. Installment credit and home equity loans are closed-end credit types.
How Different Types of Credit Affect Credit Scores
Each type of credit can have a direct or indirect effect on the important credit score factors:11
- Payment History
Late or missed revolving credit payments can negatively affect your credit score, while consistent on-time payments often strengthen it.12 Also, since you must always pay charge card balances every month, charge card bills help many people make consistent, on-time payments that may help improve their credit score. - Credit Utilization
High balances on revolving credit accounts may negatively impact your credit score because lenders view high credit utilization (CU), or the percentage of total available credit you’re using, as risky.13 With installment credit, your total debt starts high but decreases over time as you make payments, which can positively impact you. Charge cards, which require full repayment each month, may not affect CU and may improve your debt-to-income ratio when used correctly.14 - Age of Credit History
The longer you’ve had a revolving credit account, the more time you have to build up your credit score. Likewise, long-term installment credit style loans can benefit your score when managed well. Charge cards also contribute to credit age if the account remains open and in good standing. - New Credit Applications
Applying for any new credit type, including charge cards, can cause a temporary dip in your credit score due to hard inquiries, a routine part of the credit card application process.15 In the case of installment loans, the debt increase may also temporarily increase your CU. - Credit Mix
A varied credit background shows lenders that you can stay on top of several forms of borrowing and their payment deadlines, so having multiple credit types may positively impact your credit score.16 Charge cards also contribute positively to your credit mix.
Checking your credit report regularly helps you catch mistakes and spot any questionable activity before it affects your score. If something looks off, you can contact the credit bureaus to get it fixed so your score accurately reflects how you manage your money. Since different credit bureaus calculate your score differently, keeping a watchful eye helps you understand where your credit stands.
Choosing the Right Kinds of Credit for Your Needs
Whether you’re looking for credit cards to build credit or are curious about the benefits American Express® Rewards Cards can offer, understanding your financial goals is the first step in applying for a new credit type. Once you understand where you are in your credit-building journey, you can start researching the credit account types that are right for you.
Frequently Asked Questions
On-time payments are the most weighted factor in raising or lowering your credit score.17 If you can make more than minimum monthly payments, that might be even more beneficial to your credit score.
Your credit score may be going down despite making on-time payments due to high credit utilization, recent credit applications, a lack of diversity in your credit types, fraudulent activity, or a missed payment you’re unaware of. Review your credit report to get better insights into your credit standing.
Of all the mentioned credit types, revolving and installment credit may be the most common.18 Credit cards, mortgages, car payments, and student loans are all revolving or installment credit forms.
The Takeaway
Common types of credit include revolving credit, installment loans, home equity loans, and charge cards, and they all work differently. Some kinds of credit let you borrow as you go (like credit cards), while others give you a set amount to pay back over time (like car loans). Knowing how different credit types affect payment history and credit utilization can help you make smarter money moves.
1 “Master Managing Your Money,” My Credit Union
2 “Revolving credit vs. installment credit: What’s the difference?,” CNBC
3 “Consumer Loans & Credit Cards,” My Credit Union
4,7 “Glossary,” My Credit Union
5 “What is a home equity line of credit (HELOC)?,” Consumer Financial Protection Bureau
6 “What is the draw period on a HELOC?,” Bankrate
8 “What is a second mortgage, and how does it work?,” Bankrate
9,14 “How Do Charge Cards Affect Your Credit Score?,” Experian
10 “Glossary,” My Credit Union
11 “Credit Scores,” My Credit Union
12,13,17 “Credit Score Basics: Everything You Need to Know,” Experian
15 “Does applying for a credit card hurt your credit?,” Bankrate
16 “What Is a Good Credit Score?,” Experian
18 “What Is Credit Mix?,” Experian
Liv Gillespie is a Philadelphia-based writer with a double M.A. in English Linguistics & Literature and Secondary Education. Her work focuses on personal finance.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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