While looking for advice on building a high credit score, you may often see the suggestion to have a good credit mix. If you don’t have knowledge of financial jargon, the term might seem indecipherable to you. But in reality, the function of credit mix isn’t difficult to understand. Once you learn how credit mix works, it can actually help you improve your credit score.
To support you in this journey of financial independence, here’s an overview on credit mix and how to master it for a high credit score.
What is a Credit Mix?
A credit mix is the combination of lending products that you have under your name. By default, a good credit mix comprises at least one installment credit account like an auto loan and at least one revolving credit account like a credit card. Whether you have one mortgage, one student loan, and two credit cards; or one student loan and one line of credit, they can count as meeting the “good” credit mix requirement. These examples make it just as easy to learn about a credit mix as different types of debt financing.
What Are the Advantages of a High Credit Score?
Apart from having access to additional financing at your fingertips, the only major reason why you may want a good credit mix is to improve your credit score. A high credit score helps you benefit from lower interest rates, better loan terms, and higher chances of approval on rental as well as employment applications. This is also why you might see advice on credit improvement topics like how to dispute your credit and how to monitor your credit score.
How Much Weight Does Your Credit Mix Hold in Your Credit Score?
While a credit mix does play a role in improving your credit score, it doesn’t really hold a significant weight in the process. It’s because credit mix is one of many factors that can influence your credit score. The more important aspects here include making your monthly payments on time, using no more than 30% of your approved credit limit, and settling any bills that are past due or in collections. You can use methods like a reminder app to follow these tips.
With that being said, you may still want to consider having an ideal credit mix because balancing multiple credit products not only teaches you financial responsibility, but also helps you in times of hardships. At the same time, you do need to make sure that you are controlling your spending with solutions like a budget book.
How Can You Get a Good Credit Mix?
You can build a good credit mix by having at least one installment credit product and one revolving credit product. While you may apply for both credit accounts through any lender, the following tips can help you with this approach while taking care of your financial wellbeing. You can think of this process as being similar to using digital finance carefully.
Maintain a High Credit Score
To make sure that you don’t get fleeced on interest rates, you should only apply for new lending products if you have a high enough credit score. This helps you gain access to better interest rates and terms, while also making it faster for you to get your approvals. This makes it an important tip to follow while building a good credit mix.
Set Automated Payments
Making monthly payments on time and not letting them go overdue can have a major impact on your credit score. In the same vein as businesses that follow an automated billing solution, you can set automatic payments on your account to make your monthly payments without any delay. This can show lenders that you are responsible with your payments and makes it easier for you to get new credit products.
Shop Around For Loans and Credit Cards
Even when you have a high enough credit score, there’s no guarantee that every lender may offer you the lowest interest rates in the market. That’s why you should shop around for loans and credit cards with the best offers. If you have looked for the best Bitcoin debit cards in the recent past, you may not have any trouble with this process.
By going through this quick guide, you can learn the basics of credit mix and how it can help your credit score. This way, you can make informed decisions about your credit in the long run.