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Day 16: Your Credit Mix

Today’s Easy Financial Task: Learn about the type of debt that makes up your credit mix and what to consider before taking on new debt.

How to rock this task:

  1.  Pull out your credit report
  2. Review the types of debt you have
  3. Learn how to decide when it’s the right time to open a new account

Hey, there! Welcome to Day 16 of the Challenge, Dream Catcher.

Today’s a video day! *Happy Dance*

Watch the video below explaining today’s task and come back and get to work:

In today’s task, we’re talking about your credit mix. For a quick reminder, your credit mix is the different types of debt you have on your credit report.

Although credit mix makes up only 10% of your credit score, financial institutions like to see a mix of both revolving and installment accounts on your credit report because it shows you have a history of managing various forms of debt.

Examples of revolving accounts are credit cards, retail accounts, and any other account where you’re only required to pay a minimum amount each month and you can revolve the remaining balance to the next billing cycle.

Examples of installment loans are auto loans, personal loans, and mortgages. These are loans with a preset loan term that you make scheduled payments on each month.

If your credit report lacks one type of debt (revolving accounts or installment loans), you may be wondering if you should open another account to improve your credit mix.  

Although diversity is good, it’s important to understand:

You shouldn’t open an account just for the sake of opening an account.

Instead, diversify your accounts over time and only as necessary. Before opening a new account, ask yourself a few key questions:

Do I need it?

Only open accounts that:

  • Serve a purpose
  • You’re committed to managing responsibly
  • You can afford

If you’re building credit from scratch, before opening a line of credit make sure that you trust yourself to spend within your means and that you can keep up with payments. Otherwise, opening an account before you’re ready can do more harm than good.

One company I highly recommend (again), is Self. You can read my full review and learn more about how they work, here.

Also, remember the “Jump like Jordan” tactic of putting a small balance on a credit card and paying it off entirely each month (from the Day 12 task) can increase your score as much as 100 points in a year too.

However, this will only work if you have enough discipline to keep the credit card balance low so you can pay it back in full each billing cycle.

What will a new account do to my credit history length?

Remember, your credit history length is an average, so opening new accounts will shorten your credit history length overall.

Tip: When you do open a new account, don’t close any of your old revolving accounts even if they have negative records like late payments. The late payments will stay on your history and impact your score whether the account is open or closed, but the account age can still do positive things for your credit history length.

Have I done my homework on the account that I’m considering?

Choose your accounts carefully. Even though some retail credit cards and store financing options are easy to qualify for, they can also have a higher interest rate than a major credit card. I suggest staying far away from retail/store cards.

Before opening an account confirm:

  • The interest rate and compare it to other credit cards, loans, or financing offers
  • The fees and compare it to other credit cards, loans, or financing offers
  • What credit bureaus the credit card or loan issuer reports to
  • That there is no additional fine print to the credit card or financing contract you need to be aware of

Take a moment to review your current credit mix.

What accounts do you currently have?

What accounts do you plan on adding in the future that will diversify your mix?

To make your life easier, SoFi has a section of your online credit report where you can review your credit mix. When you sign-up, SoFi it's for free. Yup! Sign-up HERE.

Remember, if you need help during today’s task, reach out to your accountability partner(s) or comment in the section below.

Share what you’ve learned today with your social media friends and tag me @thebudgetnista:

Today I learned how and when to diversify my credit mix. Day 16: #Liverichercredit

Live richer,

Tiffany “The Budgetnista” Aliche

P.S. Don’t forget to get your free Live Richer Challenge: Credit Edition Starter Kit. Get it here.

P.P.S. Here’s a copy of the Challenge Calendar. It’s a fun way to keep track of your progress.

You can also reach out to me here:

My Lisa Rule: I have 4 sisters and Lisa is the baby (well she’s not a baby anymore). Of all of my sisters, I’m the most protective over her. Before I share any product or service with you, it must pass my Lisa Rule.

What’s the Lisa Rule? If I would not advise Lisa to use a product or service, I won’t advise you to either. YOU are my Lisa's. I feel protective over you and your financial journey.

The products and services I recommend pass my Lisa Rule. Yes, I may be an affiliate or partner and earn a commission off of referrals or income, but I would not recommend a product or service that I didn’t believe was helpful and useful.

Share the wealth!

  • I’ve learned not to apply for store credit cards. Maintain the ones that I have. The importance of keeping each card paid in good standing. This process is going to take some time.

  • I have 1 installment loan and 2 revolving credits. I don’t want to open any new account.
    One of those credit cards is impacting the credit negatively, I’m wondering if I make payments to that account, will that help to raise my score?

  • I have reviewed my credit mix and for my history I have a good mix of cards and installment loans. I’ve been learning about short term loans vs long term loans and decided I’m ready to use Self and follow the process for building back my credit. I’m so excited to become eligible for their secured card because that adds to my mix and doubles up he credit points I can earn by being responsible and paying on time. I think I love credit lol

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