In the world of personal finance, the credit score is the report card that you can check at certain intervals. It shows how much creditworthy person you are. Based on the credit score, one can determine whether they are eligible for loans, and therefore, one can take financial risks based on it.
Now, a credit score depends on an algorithm and is based on several factors. One of the key factors that determine the credit score is the credit mix, which ensures that a person is well served with credit products and how much a person has exposure to each item.
For example, one of the core elements for a person is to take control of their finance, and that one can get through their ability to manage different credit accounts.
Understanding the Criteria of Credit Mix
The first thing that a person can do is have a credit account and one of the easiest way to start that is through getting a credit card. One of the core aspects of credit mix is that it allows a person to have a breakdown of their credit portfolio and that determines their loan eligibility criteria.
- The Revolving Credit Criteria
When it comes to the use of the revolving credit then for the person who has one has the advantage of getting credit upto a certain limit. The process continues and repeats itself when the person who is using one clears all their due.
- Keeping Installment Loans
There are installment loans like auto loans, home loans, and others that one can take with the help of a DSA app, and through that, one can get exposure to such a credit portfolio.
- Retail Accounts for Credit
There are certain aspects or credit accounts where a retailer will get credit for the sale or transaction of retail items. It’s an account where a person retail account will be created for a person who is such a business.
The Need for Diverse Credit Account and It’s Important
There is a need for a diverse credit mix as it helps a person to increase the CIBIL score. A diverse credit mix helps to improve the risk assessment criteria of the credit authority board and that helps to improve the creditworthiness of a person.
For example, with a good credit mix, one can improve their risk assessment criteria, which will eventually help the person to get loans. A person can also get the advantage of having better interest rates, which will reduce the financial burden of a person.
When a person has a good credit mix, then in that case, it increases the credit approval chance of a person, and that helps the NBFCs to look for such borrowers who are credit-friendly. The companies can also generate revenue by catering to those customers.
Another important criterion for maintaining a healthy credit mix is to show that the person is in a financially stable position to take care of all those credit accounts and that makes them a versatile person to get future loans.
Things to Do to Get Optimal Credit Mix
Now, a person who has just entered the work field needs to start by building a credit score and then slowly having a quality credit mix. For example, an individual can start with a credit card as it’s easy to get, and one can start by getting a credit card against their FD.
The next thing is through loans which one can get for the purchases of consumer durables or auto loans. All these loans are installment loans, which also add to the diverse mix of loans and make a person creditworthy. Apart from these, one can also later get a home loan or mortgage or start a line of credit, which will also enhance the credit mix.
Here, a person can also get in touch with a personal loan DSA who is there to help an individual get a personal loan and that also adds a separate variant in the credit mix.
How to Ensure That One Manages Credit Mix Effectively
The final part of the entire credit mix story is that one must maintain it and pay all their dues on time. It helps to show that one can maintain all the credit accounts, which helps them to reduce the debt account and make a strong financial background for themselves.
These are some of the necessary nuances one must know about credit mix when they are building their credit score.
