COMPONENT 4 –
TYPES OF CREDIT
10% OF YOUR CREDIT SCORE

Keep in mind that lenders do not know you personally, so they use your credit report and your credit score to gauge your financial character and whether they want to give you credit or not. Your credit score consists of five different components. The financial steps you take can hurt or help your scores and sometimes can hurt you in one component and help you in another. The one explained here with tips on how to improve your credit score is Types of Credit, which makes up 10% of your Credit Score. This component reviews what kind of credit mix you have in terms of all the credit you are currently utilizing. 

This component is one that is important, but not one you really need to actively seek to change. You should only apply and open new credit accounts as needed as this will improve your score in this component, but hurt your credit score in the other components. You also do not want to unnecessarily take on debt as you will have to pay back credit with interest. The different types of credit that you are utilizing will increase as your needs change. This can include credit cards, student loans, car loan, mortgages, and other types of revolving or installment credit. Part of the reason people with student loans have a better credit score than people who do not is that they have a better credit mix. 

Having different types of credit and paying them all responsibly shows to lenders that you are a responsible borrower who knows how to manage their payments. This makes lenders feel as though you can be trusted with new loans since you have already demonstrated a positive history of making your payments across different credit accounts.  

Other Credit Components