Why is it important to have a Healthy Credit Mix?

cibil score check

Aditya was finally purchasing his new house after his housing loan was sanctioned by ABC Bank on the basis of his improved cibil score check. His happiness was indeed visible with a glaring smile on his face, as his dream of living in his own house was finally getting fulfilled.

However, since he had to face quite some delay due to low credit score, he resolved that he will monitor his credit score regularly and take immediate steps, if required, to improve the score.

This resolution made him initiate yet another conversation with Kuber where he asked for various ways to have a better cibil score check.

Kuber was quick to respond to his queries as always.

While the repayment history carries the maximum weight in your cibil score check, the credit mix becomes equally important. A mix of some unsecured loans and a few secured loans is always preferable. Here are a few reasons for it:

  •         Tendency to default for Unsecured Loans –The tendency to default on unsecured loans is greater because such loans are generally offered at relatively higher rates of interest. The interest is higher considering the added risk premium to the loan. As such, even a slight delay in repaying the personal loan will pull your cibil score check downwards.
  •         Long Term Loans portray Better Financial Management –When you borrow long term loans, it generally reflects your control over your finances. Further, the continuing repayments on time make your cibil score check reflect your timely repayments over a longer period.
  •         Revolving Credit v/s Instalment Loans – Credit Cards, bank overdraft etc. are examples of revolving credit wherein there is a set limit and it gets reset after you pay the amounts due on a periodical basis. On the other hand, housing loan, car loan etc. are examples of installment loans wherein you pay periodical installments. The presence of installment credit and its timely repayments helps a better credit score since the banks perceive such borrowers as less-risky borrowers in terms of default.

So, now you know, paying your dues on time is not the only important thing for your CIBIL score, getting a healthy credit mix is equally important.

Yes, indeed. And one more thing I know is that we are meeting in the evening for the treat.” Aditya was all in smiles.

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