The saying “Don’t put all your eggs in one basket” can teach you a lot about having a good credit mix and financial management. A credit mix can make up to 10% of your credit score. Having a diverse credit mix positively impacts your CIBIL score, demonstrating your ability to manage different financing options responsibly.
Let’s dive into understanding and discover 3 proven strategies to boost your credit score through a healthy credit mix. Read on !
Strategy 1: Boost Your Credit Score Through Credit Mix
Maintaining a range of credit types can help to boost your CIBIL score, improving your overall creditworthiness. So, check out the below points to know how it works:
1. Have a Credit Mix
Evaluate the types of credit lines you currently possess. Check whether your credit mix is diverse enough or if you are using only one type of credit. You must aim to have a balanced mix of active credit lines. Apply for a credit card and take a loan from a leading financial institution to diversify your financial portfolio. This can demonstrate your ability to manage different credit lines responsibly.
2. Monitor Your Credit Utilisation
Keep track of the amount of the available credit you are using. High credit utilisation can negatively impact your CIBIL score. So, aim to keep your balances low relative to your credit limits, preferably below 30%.
3. Keep Your Old Accounts Open
Closing credit accounts, especially older ones, can shorten your credit history and reduce the diversity of your credit mix. So, keep accounts open, even if you are not using them regularly, to maintain a good credit history.
Strategy 2: Avoid Common Credit Mix Mistakes
Avoid these 2 common credit mistakes to improve your credit score:
1. Applying for Multiple Credits
When you apply for a new credit, a hard inquiry is generated on your credit report. Multiple hard inquiries within a short period can signal to lenders that you are too dependent on credit. This may discourage lenders from granting you credit.
2. Ignoring Interest Rates and Fees
When considering new credit accounts, pay attention to interest rates and fees. High interest rates or annual fees can add up quickly and negate any benefits from having a diverse credit mix. Choose credit products with terms that align with your financial goals and capabilities.
Avoiding these 2 common mistakes and understanding the different types of credit accounts can help you boost your credit score effectively. In the next section, we will discuss the types of credit accounts.
Strategy 3: Different Types of Credit Accounts
Understanding the different types of credit can help you make informed decisions about borrowing and repayment. Let’s understand in detail:
1. Instalment Accounts
Instalment loans involve borrowing a principal amount and compound interest that must be repaid over a scheduled period in regular instalments or every consecutive month. Examples of this include a Car Loan, Personal Loan, etc. With instalment accounts, you know the amount you owe each month, making budgeting more predictable.
2. Mortgage Accounts
A mortgage account is a specific type of instalment loan that you can use to finance the purchase of a home. This type of loan involves borrowing a large sum of money by keeping your property or assets as collateral. The principal borrowed amount, and the accrued interest are repaid over a long term through regular monthly payments.
3. Revolving Debt Accounts
Revolving debt accounts, such as personal and business lines of credit, allow you to repeatedly borrow up to a certain credit limit and repay the borrowed amount in instalments. You can even choose the minimum monthly payment requirement. Hence, revolving debt accounts provide flexibility in borrowing and repayment.
4. Open Accounts
Open accounts are credit accounts with a revolving balance that must be paid in full each month. This type of account does not have a specific maximum limit. However, the balance must be paid in full by the due date to avoid interest charges.
How Can Credit Mix Help You Build a Good Credit Score?
Maintaining a healthy mix of credit can help to showcase your ability to manage diverse credit effectively. Check out the following points to learn how credit mix can benefit your CIBIL score:
1. Increases Your Credit Score
Maintaining a good credit mix of different types of loans and credit cards can help to boost your credit score. Moreover, timely repayments of your loans can further improve your CIBIL score.
2. Showcases Financial Responsibility
Having a mix of different types of credit demonstrates to lenders that you can responsibly manage various loan types. This also reduces their perceived risk in extending funds to you, enhancing your overall creditworthiness.
3. Strong Credit History
A healthy mix of credit types can gradually contribute to a strong credit history. This can help you apply for loans with better terms. Lenders prefer borrowers with a proven track record of managing various types of credit effectively.
To Conclude
Credit mix is an important element of your credit score determination process and plays a crucial role in showcasing your strong credit management skills. It has a positive impact on your overall financial health. To have a healthy credit mix, you can apply for a Loan Against Property, a Personal Loan, a Business Loan, or even a RuPay credit card from leading financial institutions. So, what are you waiting for? Diverse your debt, boost your credit score and embark on your journey towards making all your dreams come true.
Also Read: The Role Of Credit Scores In Commercial Loan Approval
