What is Credit Mix and How Does It Affect Your CIBIL Score?

When building or improving their CIBIL scores, people often tend to focus more on ensuring timely payments, keeping their card balances low and making fewer credit applications. However, they ignore one factor that quietly impacts their CIBIL score and this is credit mix. Read on to know what credit mix is and how it influences your CIBIL score.

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What is a Credit Mix?

A credit mix refers to the variety of credit accounts you have in your CIBIL report. There are several types of credit that you may avail of in your lifetime such as credit cards, personal loan, car loan, home loan and business loan. The credit mix factors in the diversity of the loans and credit facilities you have availed till now and shows whether you have the ability and experience of managing them.

How Does Credit Mix Affect CIBIL Score?

Credit mix is one of the factors that TransUnion CIBIL uses to calculate your CIBIL score. It helps lenders:

understand your credit behaviour and your ability to manage different credit products.
assess your risk profile more accurately when evaluating your loan application.

While it has a low impact on your CIBIL score as compared to payment history, it still plays an important role in shaping your credit profile. Here’s how:

Limited experience: Having only one type of credit or too many unsecured loans may be viewed negatively by lenders as it shows limited credit experience of the loan applicant.

Financial maturity: Having a balanced mix of both secured and unsecured loans can strengthen your credit profile further as it shows the financial maturity of the loan applicant.

Does Having Multiple Loans Improve Your CIBIL Score?

Pros:

Having multiple loans improves your CIBIL score if:

they create a balanced mix of both secured and unsecured loans in your CIBIL report
if you have sufficient repayment capacity to pay them off without missing your due dates

Cons:

Having multiple loans can also negatively impact your CIBIL score if you don’t manage them well.

Hence, it is not about the number of loans you have but about how well you manage them. Having a single well-managed loan is much better for building your CIBIL score than having several loans that cause strain in your pocket, leading to risk of default.

Does Having Multiple Credit Cards Affect Your CIBIL Score?

Pros:

Having multiple credit cards improves your CIBIL score if:

You pay your credit card bills fully and on time every time.
If your credit utilisation ratio (represents how much of the total credit limit that is currently in use; expressed in percentage) is low.

Cons:

Having multiple credit cards can also reduce your CIBIL score, if you don’t manage them well.

Those experiencing temporary financial strain can pay at least the minimum amount due to keep their credit card account active and avoid paying late payment fees. However, one should avoid making this a habit, otherwise:

interest will be charged on both the outstanding balance and new purchases from day one until all dues are cleared.
you will lose the interest-free period of up to 40-45 days (depending on the card issuer).

Therefore, always pay your credit card bill in full to avoid high interest charges and save yourself from falling into a debt trap.

What Types of Credit Accounts Should Be There in Your Credit Mix?

A credit mix broadly constitutes:

Secured Credit - Secured credit is backed by some collateral such as property and securities. Some of the examples of secured credit include home loan, car loan, loan against fixed deposit, loan against property and loan against securities.
Unsecured Credit - Unsecured credit does not have an underlying asset as collateral. Examples of unsecured credit include credit cards and personal loans.

Having a balanced credit mix between secured credit and unsecured credit is likely to have a positive impact on your CIBIL score.

How Can I Improve Credit Mix?

The only way to improve your credit mix is to have a balanced mix between secured and unsecured loans. However, don’t avail loans just to improve your credit mix. Instead, build a balanced credit profile naturally as your financial needs grow.

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How to Check CIBIL Score for Free with Paisabazaar?

Step 1: Enter your mobile number

Step 2: Verify your number using the OTP

Step 3: Enter your PAN and basic details

Step 4: View your free credit score and get detailed credit report

FAQs

What is a credit mix?

Credit mix refers to the different types of secured and unsecured credit accounts you have in your credit report. It shows lenders your experience and ability to handle various types of credit.

Does credit mix alone improve your CIBIL score?

No. When calculating your CIBIL score, CIBIL takes into account multiple factors, including your payment history, credit utilisation ratio, credit inquiries and age of credit history.

How does credit mix affect your CIBIL score?

A balanced mix of both secured and unsecured loans shows that you are capable of handling both types of credit responsibly, which can have a positive impact on your CIBIL score.

How important is credit mix in building your CIBIL score?

Credit mix is one of the factors that CIBIL (credit bureau) uses to calculate your CIBIL score. However, its impact is lesser than that of payment history.

What is a good credit mix for a high CIBIL score?

A good credit mix usually includes a balance of the secured loans (such as home loan, car loan and loan against property) and unsecured loans (such as personal loans and credit cards).

Can having only credit cards affect your CIBIL score?

Yes, having only credit cards or any one type of credit may highlight your limited credit experience and thus, restrict improvement in your CIBIL score.

Does taking a loan improve my credit mix?

Taking a loan can improve your credit mix only when it adds to the diversity to your credit profile and is managed responsibly.

How can I improve your credit mix?

You can improve your credit mix by having a balance mix of both secured and unsecured loans and handling their repayments responsibly.

Will closing a loan affect my credit mix?

Closing a loan account may affect your credit mix if it reduces the diversity of your credit profile, especially if it was your only unsecured or secured credit.

Is secured credit better than unsecured credit for building my CIBIL score?

A secured credit is backed by a collateral and thus, is considered less riskier than unsecured loans like personal loans. However, for building your CIBIL score, having both types of credit is likely to have a more positive effect on your credit score.