How can you improve your credit score using different types of credit?

2 How do different types of credit affect your credit score?

Your credit score is calculated based on five factors: payment history, credit utilization, length of credit history, credit mix, and new credit. Different types of credit can affect your score differently, depending on how you use them. Payment history is the most important factor, accounting for 35% of your score. It reflects how well you pay your bills on time. Credit utilization is the second most important factor, accounting for 30%. This measures how much of your available revolving credit you are using. Length of credit history accounts for 15%, and it looks at the average age of your accounts and the oldest account on your report. Credit mix accounts for 10%, and it shows how diverse your portfolio of credit is. Finally, new credit accounts for 10%, and it looks at how many new accounts you have opened or applied for in the past 12 months. Having a mix of different types of credit can boost your score, but opening new accounts just to improve your mix can also affect other factors negatively. Hard inquiries can temporarily lower your score by a few points, so you should be careful when applying for multiple types of credit in a short period of time.

3 How can you use different types of credit wisely?

Using different types of credit can be a great way to boost your credit score if you use them responsibly. It's important to use revolving credit sparingly, paying off your balances in full every month to keep your credit utilization low, avoid interest, and build a positive payment history. Taking out installment credit for large purchases that add value to your life, such as a home or car, can help diversify your credit mix and establish a long-term payment history. Additionally, don't apply for more credit than you need or can handle, as this will help lower your debt-to-income ratio and prevent you from falling behind on payments. Lastly, monitoring your credit report regularly and disputing any errors or fraudulent activity will help ensure that your credit score reflects your true credit behavior and protect your identity. By following these tips, you can show lenders that you are a trustworthy and reliable borrower and enjoy the rewards of a higher credit score.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?