Diversifying your credit mix can increase your chances of qualifying for a home equity line of credit. Diversifying your credit accounts can help to maintain a low rate of credit utilization. A variety of accounts can help raise your credit score. You will also have a better payment history. Read on for tips on how to diversify your credit. Once your credit is in order, you can begin applying for a home equity loan.
It can increase your chances to be approved for a mortgage loan
A key part of your overall credit strategy is mixing your credit histories. Lenders appreciate a diverse range of credit accounts. Having a mix of both new and old accounts helps your FICO score. Do not get too excited about opening new accounts to boost your score. It's better to maintain a healthy balance of different types of credit and not take out loans you can't afford to pay off in full.
Ideal is to have both revolving or installment credit. Revolving credit can be easy to manage. You should also try to pay your bills in full each month. You should also try to avoid accumulating too much debt by charging only what you can afford to repay each month. Try to obtain a small personal loan if your credit history doesn't include installment credit. This will prove to lenders that your ability to handle various types of credit.
It can help you keep your credit utilization ratio low
Credit utilization ratio measures how much revolving credit you have used compared to credit available on your credit cards. It is often expressed as a percentage, such as 25 percent. For example, if you have $10,000 available on two cards, but you are only using $500 of it, your credit utilization ratio is 50 percent.
If your credit utilization ratio is high, your credit score will suffer. You can reduce your credit utilization ratio by taking several steps. Start by limiting your credit card outstanding balances. Keep your credit card balances below 50%. This is especially important if you have multiple lines of credit.
The next step is to avoid large purchases made with credit cards. Large purchases made on credit cards can increase credit utilization. These debts should be paid off as soon as possible to avoid falling due. This will prevent you from reporting a high utilization rate to credit bureaus. This is especially important in case you are applying for a loan within the next few months and need to maintain a high score.