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How Different Types of Credit Can Boost Your Credit Score

By Finserv MARKETS - Sep 3,2019
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How Different Types of Credit Can Boost Your Credit Score

Whenever you apply for a loan, financial institutions check your credit score while reviewing your loan application. Your CIBIL score gives the financial institution a fair idea about your creditworthiness and repayment capacity. Therefore, if you have a high credit score, lenders may consider you as a low-risk borrower and approve your loan application quickly. Moreover, a good credit score can also help you avail a higher loan amount at a reduced rate of interest. On the other hand, a poor credit score reduces the chances of your loan approval.

There are several parameters that affect your credit score. One such important parameter is your credit mix. Credit mix refers to the type of accounts that make up your credit report. A credit mix may include different types of credit accounts like credit cards, home loans, personal loans, etc.

Breaking Down Credit Mix:

There are three types of credit accounts:

  • Revolving credit
  • Installment credit
  • Open credit

Revolving Credit:

Revolving credit is a line of credit that allows you to borrow an amount within the credit limit. Credit cards are typical examples of revolving credit. It usually involves monthly payments and interest charges if you have an unsettled balance.

Installment Credit:

Installment credit is a common type of loan that includes taking a fixed amount of money as a loan. It has a recurring repayment schedule. Personal loans, car loans, etc. are some examples of installment credit.

Open Credit:

Open credit is a rarer form of credit. It refers to accounts that you can borrow from up to a maximum limit. However, the borrowed amount must be repaid in full each month. It is generally associated with charge cards.

How do different types of accounts affect your credit score?

Before applying for additional credit accounts, you must be certain about the purpose behind availing the credit. A good mix of credit accounts and timely repayment will show the lenders that you are financially responsible. On the contrary, if you fail to repay the borrowed amount on time, your credit score will be affected negatively.

If you have a history of responsibly using only one type of credit product, it is likely that you have a good credit score. Don’t take on more credit if you don’t need the money. However, if you want to boost your credit score, you may consider adding a different product to your credit mix. For example, if you have already taken a personal loan, you can opt for a credit card to manage your expenses in a better way.

Apart from the credit mix, there are other factors such as your repayment history and credit utilization ratio that affect your credit score. Therefore, it is advisable to make timely repayments and keep your credit utilization rate below 40% to maintain a positive credit score. Higher the score, better will be your CIBIL report. You can check your online credit score by filling a form on CIBIL’s official website or you can also check CIBIL score for free using our smart financial health check tool.

Before applying for a Bajaj Finserv personal loan, it is advisable to check your credit score online. This will reduce the chances of rejection for your loan application. You can avail a Bajaj Finserv Personal Loan up to 25 lakhs at most competitive personal loan interest rate if you have a decent credit score. With hassle-free online application process and flexible repayment options ranging from 12-60 months, availing Bajaj Finserv Personal Loan is now easy.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment, and exclusive EMI store, all under one roof- anytime, anywhere!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522