The question is how do installment loans impact your credit score?

First, what’s an installment loan. Well, an installment loan is a loan where you have borrowed a fixed amount and that amount is paid down through installment payments. Examples are auto and home loans.

Let’s contrast this with revolving credit, where the balance revolves over time. Example is a credit card.

Why are these important? Well one of the FICO credit score factors in mixture of credit. And the folks at fico say that people with a mixture of installment have the best credit. Even better, is having a record of installment credit paid off. I’ve got a car loan from years ago paid in full. So if you can afford to get 3 year loan vs a 4 year loan for that car — your credit score may thank you a year earlier.

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Installment Loans and Credit Scores – Episode #58