What Does It Take to Have Good Credit? Part 5

This is a 5 Part Series explaining the basics of good credit.

The last factor in determining good credit is your mix of secured credit and unsecured credit. Secured credit is credit that has collateral. A car loan is secured because the car is collateral, meaning that if you can’t pay the loan, the bank will take ownership of your car. A credit card is not secured. If you can’t pay your credit card bill, the credit card company won’t take your purchases in place of payment meaning that your credit card purchases can’t be used as collateral.

10% of your credit score is determined by the mix of secured credit versus unsecured credit. A good mix is a variety of credit types: secured (mortgages, car loans, boat loans, home equity lines of credit, etc.) and unsecured (installment loans, student loans, credit cards).  The more diverse your credit the better your score will be.

In this 5 part series, we covered many of the factors that go into your credit score. To summarize:

1. Bill Payments: Always pay your bills on time – this is the single biggest factor in determining your score.
2. Debt/Credit Limit Ratio: The amount you owe should be less than 20% of the credit available to you.
3. Credit History: It’s better to have a few years worth of credit history than a few months.
4. New Credit Inquiries: Only apply for credit when you really need it.
5. Secured and Unsecured Credit: Mix it up – diversity is best.

If you have missed any part of this series, you can view past issues of Quick Tips on our website. To submit a question and have it answered in a future Quick Tips go to www.CashCreditandYourFinances.com.

Jill Russo Foster is the author of Cash, Credit, and Your Finances: The Teen Years. She provides practical tips for every day finances. Learn more about protecting your credit and living within your means, with Jill’s popular free reports and bi-monthly ezine, available here ==> CashCreditandYourFinances.com