Having a variety of credit types in your credit history can significantly boost your credit score. Relying too heavily on just one type of credit, like credit cards, can actually drag down your score over time. Lenders want to see you can responsibly manage different credit products. Here’s why it’s important to diversify credit and how to go about it.

Credit scoring models look for a healthy mix of installment loans and revolving credit. Installment loans have fixed monthly payments and terms, like mortgages, auto loans and personal loans. Revolving credit includes credit cards that you can borrow against and repay over time. Having both shows lenders you can handle different types of borrowing.

Too much installment loan debt can signal risk, while too much revolving debt can indicate you depend too much on credit cards to get by. Even if you pay in full, high balances relative to your limit on cards drag down your score. A healthy mix mitigates risks associated with any one type.

Diversifying credit also boosts your total available credit across different products. This lowers your overall credit utilization ratio, or how much of your available credit you’re using. The lower your utilization, the better for your score.

To diversify, consider adding an installment loan if you only have credit card history. Options include small personal loans, student loans, auto loans and home or personal loans from credit unions. Make sure to borrow only what you need and can afford to repay on time. 

You can also open new credit cards periodically to expand your total credit limit. Just be sure to use cards lightly and pay balances off each month. Too many new cards at once can lower your score temporarily.

Aim for 3-4 open credit cards and at least 1-2 open installment loans on your report. Let older cards age rather than closing them, since length of credit history also impacts your score. Monitor your credit report to ensure positive payment history on all open accounts.

Diversifying credit takes time, but the payoff of a healthy credit score is well worth it. Be strategic when opening new accounts and use credit responsibly. With varied types of loans and cards on your report, your score will steadily improve.