Jun 29 • 2 mins read
Boost Your Credit Score with Different Types of Credit
From mortgages for various loans to successful use of credit card, you need a lender to offer you a line of credit. To determine that they check your creditworthiness and repayment capacity by allotting you a credit score, popularly known as the CIBIL score.
Your CIBIL score can range anywhere from 300-900. It is generated using an algorithm after analysing your credit reports to summarise your borrowing history. If your CIBIL score is not leaning towards the higher end, I’ve got just the right solutions for you to raise it.
Firstly, you must consider building a credit mix by using different credit accounts to boost your credit score. These are of three types:
- Revolving credit
- Instalment credit
- Open credit
It is a line of credit with no minimum borrowing cap. Examples include credit cards and home equity. You are required to pay back monthly.
Here you borrow a fixed amounted loan and follow it with a recurring repayment schedule. Examples include, personal loans, car loans, etc.
This involves borrowing, up to a maximum limit, from certain accounts. Similar to charge cards for instance.
Having a good mix of credit accounts is best to increase credit score. The timely repayment of these will act as a guarantee to the lenders about your financial stability and reliability. However, this is not necessary because failure to repay the multiple credits on time will end up harming your credit score further instead.
For instance, consider that you and your friend have the same type of credit accounts like a credit card and a personal loan each for the same duration. Now if your friend makes timely repayments while you end up being late often, the difference is going to reflect on each of your credit score with you having a lower score. Moreover, if you both take out a personal loan for the credit mix, the scores will again differ.
How To Apply This To Your Credit?
Keep in mind that there are other factors too which determine your CIBIL score. You also need to manage your credit utilisation ratio which is the total amount of debt you owe in comparison to the total credit amount available.
If you’re worried that taking up a credit mix might not be feasible for your financial standing, there are many other credits you can consider. Say, for example, instalment loans that are easy to manage. You also need to keep an eye out for your revolving credits. Make timely repayments and keep your credit card balances low.
A healthy mix of revolving and instalment credit is a great way to increase your CIBIL score. You can show your lenders that you are capable of responsibly handling various types of credit by staying current on your repayment schedules. Essentially, bite only what you can chew and don’t open new credit accounts if you don’t feel the need for them. Simply focus on maintaining ideal spending and paying habits on your existing credit to boost your credit score.