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How Can Credit Mix Help Your Credit Score?

IndianMoney.com Research Team | Posted On Monday, January 14,2019, 06:32 PM

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How Can Credit Mix Help Your Credit Score?

 

 

How Can Credit Mix Help Your Credit Score?

Credit mix refers to the types of accounts that make up a consumer’s credit report. Maintaining a good credit mix shows how responsible you are in maintaining different types of credit and paying off multiple loans in time. Credit mix has 10% weight age in consumer’s credit score.

Keeping debt levels low and paying off dues in time are important steps you must  take  to improve your credit score. Having a healthy mix of credit, like revolving and installment credit, can also help increase credit scores

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SEE ALSO: What Is A Good Credit Score?

How Can Credit Mix Help Your Credit Score?

What Are the Different Credit Types?

Outlined below are the types of credit and their characteristics:

  • Revolving credit: this is one of the most common types of credit. This kind of credit does not have fixed number of payments in contrast to installment credit. You can get access to a fixed amount of money, until you’ve borrowed up to the maximum limit. Examples of revolving credit are credit cards and home equity lines of credit.
  • Installment credit:  Installment credit is a kind of loan that has a set amount borrowed over a specified time period. An instalment credit can have repayment period starting from 1 year to 30 years. The instalment credit is generally paid off in equated monthly installments (EMIs). Common forms of instalment credit include mortgages, car loans, personal loans, and student loans. 
  • Open credit: Open credit refers to amounts that you can borrow for up to a maximum amount (like a credit card), but which must also be paid back in full each month. Open credit is generally associated with charge cards.

SEE ALSO: Cibil Score For Credit Card

What Isn't Part of Credit Mix?

Two most common types of loans that cannot be categorized under the credit mix are payday loans and title loans. The lending institutions that provide title loan and payday loans do not report these borrowings to the credit bureaus. Consequently, these types of loans do not have any impact on the credit score.

Regular payments made every month on payday loans and title loans do not influence credit score in any way. But, in case a person defaults on a payday or a title loan, then the lending institution sells them to a collection agency who will then report it to the credit institutions. So, these types of loans do not help build credit score, but can definitely hurt.

SEE ALSO: How to maintain a good CIBIL score?

Does a Lack of Credit Mix Hurt Credit Scores?

In general there are 4 factors of credit that can impact your credit score. They are payment history, credit utilization ratio, length of credit history and credit mix. If you have only one type of credit in your credit score, it will not help much. You may have a good credit score, but without credit mix, reaching a good score is difficult.

Credit mix refers to the types of accounts that make up a consumer's credit report. A credit mix will not only help attain a better credit score, but will also help build your credit score.

The different types of credit that might be part of a credit mix include credit cards, education loans, car loans and LAP. Having a mix of credit accounts and paying them off as agreed shows how responsible you are with debts. Lenders may view you as less of a credit risk because you're demonstrating an ability to successfully manage different kinds of credit.

Advantages of having good credit score:

Establishing a good credit score helps make your financial life really easy. Given below are some of the advantages of having a good credit score:

  • If you have a good credit score, you can negotiate lower interest rates on credit cards and loans. This helps settle debt fast, as you have to pay lower interest rate on your loan.
  • A good credit score increases your chances of approval for loans and credit cards.
  • Get higher loan amounts easily approved as having a good credit score shows how responsible you are with payments.
  • With a good credit score, you’ll pay less for insurance than similar applicants with lower credit scores

How to check free credit score from IndianMoney:

To check your credit score on IndianMoney follow the steps given below. This is completely free of cost:

  • Click on 'Get Free Credit Score now'
  • Fill in the personal details required along with PAN card number and Mobile Number.
  • An OTP will be sent to your registered mobile number.
  • Enter the OTP and click on 'Get my Credit Report'
  • You will see credit score and credit account summary.

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