Long-Term Vs. Short Term Debt to Protect Credit

Long-term and short-term debt affect credit differently.

When you are trying to rebuild your credit, it is important to choose the best types of credit that will impact your credit score. Long-term versus short-term credit is one of those decisions.

History

FICO scores have been around for decades, and how they translate your credit has changed little since their creation. They are standard for determining your credit worthiness.

Function

The purpose of a credit score and credit report is to examine your credit history and determine your credit worthiness. Long-term and short-term debt are two aspects of your credit score.

Short Term

Short-term debt is considered the items that can be paid off quickly and whose balances fluctuate on a regular basis, such as credit cards.

Long Term

Long-term debts are those loans that have many payments over several years and are graduated so the balance decreases over time. These include mortgages and car loans.

Comparison

Long-term debt is valued more than short-term debt because it allows them to see how you do on a regular scheduled payment. When you are rebuilding credit, it will protect your credit better to have a long-term loan that you can pay on time.

References

• MSN.com: Your Five Minute Guide to Credit Scores
• Federal Trade Commission: Fair Credit Reporting Act