Creating multiple sources of improving credit history is not a risky idea until you are playing safe with all the sources. Your credit score, as quite popular, makes a huge difference when it comes to financing. So, do proper research for ways to maintain a balanced credit score with a good credit mix. Be it for the purpose of getting a loan, an investment plan, or for any financial transaction, your credit score can really affect your decision.
As financial institutions are highly concerned about the way you have been maintaining your finances, it is vital for you to go balanced. Let's see how different modes of credit affect and boost your credit score.
A credit mix is nothing but the various sources of credit accounts you have. Altogether it is termed a credit mix. It includes credit cards, mortgages, loans, etc. A credit mix is one of the different factors that a lender may pay attention to, before lending you money. A balanced and diverse credit makes you a promising customer.
Are you wondering how to find ways to build a strong score with different types of credit? If this is the case then you must be aware of all the various sources of credit you have in your option. Let's have a look at the different types of credit options you have-
A revolving credit, as the name suggests, has no fixed limit on the amount of borrowing or transactions made. A user of a revolving credit account can make as many transactions of as much amount. It includes credit accounts like a credit card, home equity, etc. Until the maximum borrowing limit of the revolving credit account is reached, the user can keep transacting and requesting a balance. These types of accounts require a monthly payment of the finances utilised along with the interests charged.
Instalment credit accounts include the different types of loans that an individual borrows. A loan has a fixed repayment tenure with a fixed amount of instalment to be paid at a regular interval. Hence, gradually the principal loan amount reduces as the tenure and instalment pass. There are various types of loans that an individual might borrow like home loans, car loans, education loan, personal loan, etc.
Open credit accounts are the ones that might not be widely used but are still popular. For instance, it includes credit cards among several options. Under open credit, you have to pay all the due amount by the end of the month. Unlike a loan, you cannot pay it in instalments but have to pay the full amount by a fixed date.
Have you ever wondered what is a good credit mix and how credit mix is a central player of your credit score? This is because a substantial part of your credit score is your credit mix. A lender focuses on your ability to repay the borrowed money which is clearly expressed by your credit mix. Having debt from various sources and repaying the instalments on time indicates you have good control over your debts. Hence, it makes your loan application a promising one. On the other hand, if you have a less credit mix, it may not particularly affect your credit score but having a diverse credit mix and repaying all the instalments on time really helps hike up your portfolio.
A credit score is a gateway to several financial benefits and aid you may need in your future. So, it is quite essential that you take care of every factor that affects your credit score, including the credit mix. Having a low credit mix can limit your credit score, and reaching a good score can become quite difficult. So, some lenders may not count it as a good sign, though it may not essentially bring down your score. Hence, maintaining a good credit score is the key.
Try maintaining a financial history as strong as you can. For this, you must look for ways that can improve your credit score. Pay off your debts on time without any delay to play clean. Keep checking your credit score and keep hiking it up!