Types of Credit – The Variety of Debt you Owe

Is more better?

This can seem counter intuitive. Having a number of different types of credit improves your credit score. However, that doesn’t mean have more debt owing. Having different types of credit contributes 10% of your credit score. That can seem small but could be be an 80-point swing.

There is an important difference between more credit and different types of credit. To maximize this 10% you need a variety of different types of credit – not more debt that you owe. Think of this as being well rounded.

There are two main types of debt. Revolving debt (aka your credit card) is where you pay each month according to how much you spend. And instalment loans (aka mortgage, car loan) where you are paying down the principle you owe each month.

If you have a large amount of outstanding debt or multiple sources already stop here – it is only 10%.

If your debt is under control and you want to maximize this 10% here are a few things you can do to increase the types of credit on your history.

  1. Open a credit card (try a department store promotional one). Make one purchase, pay it off immediately, and close the account. <-This will add an additional type of credit to your report.
  2. Apply for a personal line of credit. Your bank likely has a promotional offer. Use it only when you can pay it off.
  3. Pay off all your debt. Being maxed out on 21 types of debt will not improve your credit score.
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