Chris O'Shea
If you’re looking to boost your credit score, look at your credit mix, which is a mix of installment and revolving credit. If you don’t have any installment accounts, it may hurt your overall score.
What is Installment Credit?
Installment credit is a loan that you make fixed payments on over a specific period of time, so think mortgages, student loans, and auto loans.
Let’s take a look at how installment credit can improve your credit and if you should add one of these loans.
How Installment Credit Can Help
When you apply for an installment credit account, you borrow a fixed amount of money and make specific payments until the loan is paid off. This kind of loan can help you in a few ways:
Timely Payments. One of the benefits of installment credit is that it requires you to make timely payments over a long period of time. Making those payments on time, every time will boost your credit history. Credit history is a big component of your credit score.
Mixing it Up. Another part of your credit score is credit mix. When you add installment credit to your credit profile, you bolster your mix. Lenders like to see that you can handle different types of credit.
Utilization Movement. When you add installment credit, your overall credit utilization ratio should go down. That is another big part of your credit score.
Should You Add Installment Credit?
It’s typically not a good idea to search for loans just to boost your credit score. More debt is not something you should be looking for. However, if this is something that comes organically — like applying for a mortgage — then go for it. Just remember to make sure you can afford to make the payments before signing on the dotted line.
