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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Outlined below are the types of credit and their characteristics:
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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.
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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.
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.
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:
To check your credit score on IndianMoney follow the steps given below. This is completely free of cost:
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