Jenga blocks

Installment Credit: What Is It and How Does It Work?

Get Your Personal
Loan Options

Apply online with Rocket LoansSM and instantly see what you prequalify for. Enough hypotheticals. See personalized numbers.

Explore your mortgage options

NMLS #3030

*Connect with a mortgage specialist

We teamed up with Rocket Mortgage to help you get house-hunting sooner. Answer a few questions and an agent will reach out to discuss your options.

Get Started by selecting an option below

What kind of loan are you interested in?

What to expect

Tell us what you need and a representative from Rocket Mortgage will give you a call. You’ll have support at every step.

What kind of property do you want to purchase? What kind of property do you own?

Why we’re asking

Rocket Mortgage® can provide a more accurate rate estimate if they know what kind of property you’re interested in.

NMLS #3030
How do you use your property? How would you use this property?

Why we’re asking

Having a little more information upfront helps Rocket Mortgage® provide a personalized rate faster.

NMLS #3030
When are you planning to buy?

Still House Hunting?

Hope you find your dream home soon! In the meantime, it’s never too early to know your rate.

NMLS #3030
Are you a first-time home buyer?

It’s all good:

Whether it’s your first – or second property – Rocket Mortgage® can provide you with a rate estimate.

NMLS #3030
Do you have a second mortgage?

It’s all good

If you have a second mortgage, it’s no problem. Letting us know helps to customize your rate.

NMLS #3030
What is your credit score?

Don’t know your score?

Don’t sweat it! Make your best guess. Credit scores range from 300 (low) to 850 (excellent).

NMLS #3030

Tell us a bit more about you

What happens next?

A representative from Rocket Mortgage® will be in touch to discuss your commitment-free, personalized rate. Then you can decide whether you’d like to lock it in!

NMLS #3030

Enter your contact info so Rocket Mortgage® can get in touch!

By providing your contact information and clicking the "Agree & Send Information" button below, you agree to our Terms of Use and Privacy Policy. You also expressly consent by electronic signature to receive telephonic sales, promotional, marketing and other calls and text messages, including any calls and messages sent by any automated system or other means for the selection or dialing of telephone numbers, or using an artificial or prerecorded voice message when a connection is completed, from Rocket Mortgage, its Family of Companies, our partner companies and our marketing partners at the telephone number you have provided, even if that telephone number is on a corporate, state, or national do-not-call list or registry. Your consent and agreement to receive such calls or text messages is not a condition of purchasing any property, goods or services from us, our Family of Companies or any of our partners.

NMLS #3030

There are two main types of credit accounts: revolving credit and installment credit. When it comes to revolving credit, think credit cards. When it comes to installment credit, think mortgages or personal loans.

Our guide covers the ins and outs of installment credit: what it is, how it works, how it affects your credit score and if it’s a good option for you.

Ready for a Personal Loan?

Applying through Rocket LoansSM is fast and easy.

Checking your options won’t affect your credit score.

Installment Credit, Explained

Installment credit (aka an installment loan) is a loan you make fixed payments on over a set period until the loan is paid off. Installment loans come with an interest rate (fixed or variable), applicable fees (late fees or origination fees) and a repayment plan that schedules your monthly payments (aka installments).

Installment credit is different from revolving credit. Revolving credit doesn’t provide a lump sum of money that you pay back in monthly installments. A revolving credit account is a line of credit that has a predetermined maximum credit limit you can borrow from up to your limit. You can repay your entire balance at the end of the month or make the minimum monthly payment.

Revolving credit is a lot more flexible than installment credit, but installment loans usually allow you to make larger purchases.

Some common types of installment credit are:

  • Mortgage loans: Mortgage loans are used to buy homes. The loans typically come in 10-, 15- and 30-year repayment periods and their interest rates can be fixed or variable.
  • Personal loans: Personal loans can be taken out for a variety of reasons. The repayment period on personal loans depends on how much you borrow but is generally around 2 – 5 years. The interest rates on personal loans can be fixed or variable.
  • Student loans: Student loans pay for higher education or career programs. Student loans typically come with a standard 10-year repayment plan, but this can vary based on the loan. Federal loans have fixed interest rates. Private loans can have fixed or variable interest rates.
  • Auto loans: If you need money to buy a car, you take out an auto loan. The repayment period on auto loans can range from 3 – 6 years, and the interest rate is fixed.

How Installment Credit Affects Your Credit Score

The relationship between your credit score and your installment loan is a two-way street. Your credit score affects your ability to be approved for an installment loan, and it’s one factor that can influence your loan’s interest rate and loan repayment terms.

On the other side of the street is your installment loan. An installment loan can do one of two things: boost your credit score and credit mix (aka credit diversity) or lower your score if you consistently make late payments.

Installment credit can affect your credit score because of:

  • On-time payments: On-time payments on your installment loan(s) can help you build and maintain a good credit score. Thirty-five percent of your credit score is based on your payment history, so missing payments can negatively affect your score.[1]
  • Paying it off: Paying off your loan with your account in good standing positively impacts your credit score for up to 10 years.

To make on-time payments, and ultimately, pay off your loan, make sure you can afford the loan first. Defaulting (aka missing payments) will likely drop your credit score. When it comes to loans, you should only apply for them when you need them, and/or you’re prepared to repay them.

Pros and Cons of Installment Credit

When it comes time to decide if you want an installment loan, it’ll help if you know its benefits and drawbacks. Knowing the pros and cons of installment loans might even steer you to revolving credit because you’ve decided it would be the better option.

Benefits of installment credit

  • Lower interest rates: The interest rates on installment credit are generally lower than the interest rates on revolving credit. Because of the higher interest rates on revolving credit, any balance you carry over (aka revolve) to the next month will get more expensive because interest gets added to the remaining balance.
  • Predictable payments: Installment credit is paid off with fixed monthly payments, which can help with budgeting. The monthly payment amount on revolving credit usually changes because it depends on how much credit you’ve used, which can make it harder to budget.
  • Larger loan amounts: Installment loans have larger dollar amounts than revolving credit accounts. If you want to make a large purchase or investment (think: thousands to hundreds of thousands of dollars), you’ll likely need to do it with installment credit.

Drawbacks of installment credit

  • Stricter qualifications: Installment credit lenders usually have stricter qualification requirements than revolving credit lenders when it comes to your income, credit history and outstanding debt.
  • Limited loan uses: There aren’t many restrictions on use with revolving credit. Installment credit is typically used for a specific purchase or purpose.
  • Potential high fees: There are typically a lot of fees involved with installment loans, including loan origination fees, application fees, legal fees, late fees or prepayment penalty fees (a fee for paying off your loan early).
  • Inflexible repayment terms: Some lenders won’t let you change your loan terms once they’re set. Refinancing or debt consolidation may be your only options to get new loan repayment terms.

With Great Credit Comes Great Responsibility

If you want to use credit to make your purchases, your main options are installment credit or revolving credit.

Installment credit can help you make large purchases, and you repay it in a more predictable way than revolving credit. Your credit score affects the installment loan terms you qualify for. Your loan payment history will affect your credit score.

The key is to know your budget. Make sure you can afford your payments and can make them on time because with great credit comes great responsibility.

Ready for a Personal Loan?

Applying through Rocket LoansSM is fast and easy.

Checking your options won’t affect your credit score.

The Short Version

  • Installment credit (aka an installment loan) is a loan you make fixed payments on over a set period until the loan is paid off
  • Some common types of installment credit are mortgage loans, personal loans, student loans and auto loans
  • Your credit score affects the installment loan terms you qualify for. Your loan payment history will affect your credit score
Back to top of page

  1. myFICO®. “What’s in my FICO® Scores?” Retrieved March 2022 from

You Should Also Check Out…

Our team of financial experts write, review and verify content for accuracy and clarity.