The Forgotten Factor That’s Affecting Your Credit Score

There are multiple factors that influence your credit score. How much debt you have, how much debt you spend, how frequently you pay back debt, if you have any hard credit checks or derogatory marks from collection agencies – the list of things that your credit score relies on is heavy. However, there is one factor that is often overlooked, and most Canadians have no idea that it’s affecting their credit score.

Getting a good credit score might seem impossible when you have a lot of credit accounts open, but people with the best credit scores use this tactic to their advantage. Canadians with mixed credit accounts on their report, both installment and revolving credit, tend to have higher scores compared to people who only have one or the other.

Revolving Credit:

Any credit that is paid down and becomes available to you again, a line of credit or credit card, is referred to as revolving credit. When a bank or a financial institution lends you a specific amount of money for revolving credit, the account remains accessible to you as you continually pay off and re-spend. Having more than one revolving credit account, alongside installment credit, will show great diversity on your report.

Installment Credit:

This kind of credit is any debt that is paid off by the borrower over a period of time. The lump sum of money that you borrow will have a fixed rate and will be paid off monthly to the creditor. Examples of installment credit are auto financing, mortgages and student loans. Unlike revolving credit, this kind of debt is a one-time borrow; once it’s paid off, you can’t re-borrow from the same pot.

Credit mix accounts for 10 per cent of your overall credit score calculation. Having more than one type of credit account on your file, while managing them all responsibly, will have a positive effect on your score and will be evidence to creditors that you can successfully borrow from both kinds of credit. By doing so reliably, your credit score could drastically enhance, and your chances of being approved for loans in the future will increase.

Successfully utilizing credit mix to rev up your score starts with being able to prioritize your debt and pay back creditors on-time. If you feel like you’re responsible enough to start adding accounts to your credit file, we suggest having a credit mix of 4-5 accounts. Balancing between installment and revolving credit, while being able to pay it all off stress-free, will guarantee you a raise in your credit score.

Through Canada Drives and our affiliate partners, we provide safe and secure personal loans and auto loans to people who want to build their credit history. Click here to learn more.