New to the Live Richer Challenge: Credit Edition? Learn more about it HERE.
Need to catch up? Head here and then come back!
Day 10: Amounts Owed
Day 11: Length of Credit History
Day 12: 100 Points
Day 13: Review, Reflect, Relax
Day 14: Weekly Inspiration
Day 15: Hard vs. Soft Inquiry
Week 3: Credit Maintenance
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:
- Pull out your credit report
- Review the types of debt you have
- 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 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.
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, Credit Sesame has a section of your online credit report where you can review your credit mix. When you sign-up, Credit Sesame will extend to you, up to $50,000 worth of identity theft Insurance, 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 tweeps:Today I learned how and when to diversify my credit mix. Day 16: #Liverichercredit Click To Tweet
You can reach out to me here:
Facebook: The Budgetnista
Private Forum: Dream Catchers : LIVE RICHER
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.
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