There is a reason, the age-old adage “don’t put all your eggs in one basket” has stuck around all this while. It is quite widely known that a good financial life requires balance, and the majority of financially secure people manage their money in an even-handed manner. This is why, your financial portfolio should be made up of a diverse mix of investments. To manage your buying habits, you should have a good balance of savings targets and budgeting priorities, ensuring that you have a steady inflow during your retirement as well. Hence making an effort towards maximizing potential growth while reducing risk should take the priority.
When it comes to your credit score, mixing it up is just as important but is often overlooked. You need a lender to provide you a line of credit for anything, whether it’s for mortgages for a loan or successful credit card use. They do this by assigning you a credit score, also known as the CIBIL score, which assesses your creditworthiness and payback capacity. Your credit reports summarize your borrowing history & a score is given to you. This is your CIBIL score which might be anything between 300 and 900. If your CIBIL score isn’t on the upper end of the spectrum, credit mix might come to your rescue.
What is Credit Mix?
Credit Mix refers to the diversity of loans in your credit file, as well as how effectively you manage that mix in terms of credit ratings. Ignoring it might lower your credit score but knowing and enhancing it can help you improve your credit score. You should consider creating a credit mix by using various credit accounts to start with.
What are Different Types of Credit?
- Revolving Credit
It’s a credit line with no minimum borrowing limit. There is no end date or set balance for revolving credit. Instead of spreading the debt evenly over a certain period of time, a monthly minimum payment is required. You have the option of paying more than the minimum but are not obligated to. The most prevalent kind of revolving credit is credit cards. Another form is a home equity line of credit.
- Installment Credit
Installment credit has a predetermined end date and a set of monthly instalments. Mortgages, school loans, vehicle loans, and personal loans are all examples of instalment loans.
- Open Credit
Open credit involved borrowing from certain accounts up to a particular limit (generally a maximum limit is set). For example, charge cards.
A credit mix that includes both revolving and instalment credit is considered excellent. Opening a credit card and paying your payment on time every month is a simple method to use revolving credit. To avoid interest, charge just what you can pay off each month. Consider taking out a modest personal loan or other secured loan if you don’t have an instalment loan and just have credit cards. This will show that you have the capacity to manage various forms of credit.
To improve your credit score, you should have a solid mix of these credit accounts. The lenders will be assured of your financial stability and reliability if you return these loans on time. However, failing to repay numerous credit cards on time may hurt your credit score much more. Also, do keep in mind that your CIBIL score is influenced by a variety of other factors. You should also keep track of your credit utilization ratio, which is the total amount of debt you owe in relation to the entire credit limit. In short, avoid opening additional credit accounts if you don’t need them. To improve your credit score, simply maintain good spending and payment habits on your existing credit.