A credit mix is a combination of different types of credit accounts that you have, such as credit cards, student loans, mortgages, and car loans. It is one of the five components that FICO® considers while calculating your credit score, accounting for 10% of your overall score.
Credit mix is an essential factor that helps determine your credit score, and lenders consider it while evaluating loan applications. In this article, we’ll be discussing the different types of credit there are, and how your mix of credit can impact your credit score.
Types of Credit Accounts
There are two main types of credit accounts: revolving and installment. Revolving credit lines, such as credit cards, don’t have a set payment or a fixed end-date, whereas installment accounts have a fixed payment for a fixed amount of time, such as auto loans, mortgages, and student loans.
Having a good mix of credit accounts shows your lenders your experience in managing multiple types of loans, and it can work in your favor when it comes to obtaining a loan or credit card. A perfect mix of credit may include an auto loan, mortgage, and 2-3 revolving credit lines
How Does Credit Mix Affect Your Credit Score?
While it is one of the factors that can impact your credit score, it’s only 10% of your overall score. Lenders are more concerned with how you manage your loans, and they evaluate your payment history, credit utilization, length of credit history, and new credit inquiries, than they are with how many credit cards you have.
If your credit score is already good , it may be worth exploring ways to fill in the missing pieces, but it’s not something to lose sleep over. Remember, your focus should always be on managing your loans responsibly and paying your bills on time.
Why is a Good Credit Mix Important?
A good mix of credit can have several advantages, such as:
Demonstrating creditworthiness: It shows lenders that you have experience in managing different types of credit accounts, and it can increase their confidence in your ability to repay loans.
Improving credit score: As we discussed earlier, it is one of the factors that can impact your credit score. By having a good mix of credit accounts, you can improve your credit score and make yourself a more attractive candidate for loans and credit cards.
Access to better loan options: With a good credit mix and a high credit score, you may have access to better loan options and interest rates.
Building a positive credit history: Building a positive credit history is crucial for your financial well-being, and having a good credit mix can help you achieve this. By managing different types of credit accounts responsibly, you can demonstrate to lenders that you are a trustworthy borrower.
How to Improve Your Credit Mix?
If you’re looking to improve your credit mix, here are a few steps you can follow:
Diversify your credit accounts: Try to have a mix of revolving and installment credit accounts, such as a credit card, auto loan, and mortgage.
Avoid closing old credit accounts: Closing old credit accounts can shorten your credit history, which can lower your credit score. Try to keep your old accounts open, even if you’re not using them regularly.
Apply for new credit accounts carefully: Applying for too many credit accounts in a short period can have a negative impact on your credit score. Make sure to research your options and only apply for credit accounts when you need them.
Manage your credit accounts responsibly: The most important aspect of having a good credit mix is managing your credit accounts responsibly. Make sure to pay your bills on time and keep your credit utilization low.
Frequently Asked Questions