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Make Your Credit Report Look Good: With A Mix Of It

Apr 12, 2008
How many credit cards do you have? Do you have a car payment, a house payment as well as others? If so, you may feel like your credit rating is taking a huge hit due to the amount of credit lines that you have open. But the opposite is actually true. Your credit score will be higher if you maintain a good mix of credit.

What is a mix of credit? Having a good mix of credit basically means that you have several different types of credit lines open and current. A mortgage, an auto loan, several credit cards and a personal loan or two is ideal. Mix of credit accounts for 10% of your credit score.

Many people erroneously believe that they need to pay off their credit cards before they buy a car or house. While it is important to keep revolving credit balances low, less than 25% of the credit limit, you should carry balances on several credit cards. You should also keep credit lines open. Do not think that paying off a card and canceling it is going to help; it wont. Instead, pay down the balances on your cards and go buy a new car or house.

When it comes to maintaining a good mix of credit, most advisers recommend that you have one loan for every 3 to 5 credit cards. Eligible loans include mortgage accounts, auto loans, equity lines of credit and personal loans. You should also spread out your credit card debt among multiple cards rather than carrying only one or two cards, 3 to 5 is ideal.

If you have numerous credit cards with low balances, make sure that you pay all of your payments on time. Do NOT transfer all of your balances to one card. If you receive a credit card with a lower interest rate, swap it for one of your cards with a higher interest rate. You can transfer high-interest balances to a card with a lower interest rate but keep your high-interest account open. Remember; keeping multiple accounts in good standing is the goal.

Having a lot of revolving credit accounts is not going to hurt your credit score as long as you pay attention to your debt ratio and your mix of credit. If you have a lot of credit card debt and want to purchase a car, pay down your credit card balances and go shopping for a car. Another great way to improve your debt ratio is to ask for increases on your credit card limits. This does not mean that you have to charge more on your cards. In fact, you should not. All you are trying to do is improve your revolving debt ratio not your spending power.

Improving your credit score takes a lot more than paying your bills on time. Sure, paying your bills is a big part of it, but you must also pay attention to more subtle details such as mix of credit in order boost your credit standing.
About the Author
J Delgado is an expert in helping individuals restore there credit. To find out more about having foreclosures, bankruptcies, late payments and other derogatory items removed from your credit report contact him at creditexpert@scrupyourcredit.com or at: http://www.scrupyourcredit.com
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