Definition
The type of account is a classification of trade lines for credit scoring purposes.
Analysis
Credit accounts are classified according to the terms of the account. Any credit account that requires a certain number of identical payments according to a predetermined repayment schedule is classified as an installment loan. These may be secured or unsecured.
Other credit accounts that allow for the balance to be carried over from one month to the next, and in which funds repaid may be reborrowed is classified as a revolving account. There are other types of accounts also that could appear on a consumer credit report.
Credit reports include multiple types of accounts, which may be weighted differently in credit scoring models. FICO-based credit scores devote 10% of the formula to consider the types of accounts on a credit report. A good mix of accounts, such as a car loan, a home mortgage and 2 major credit cards can help to build a broad credit base and an improved credit score.
