What is a Credit Mix? Benefits of Credit Diversity

CreditWise gives you access to your free TransUnion® credit report and weekly VantageScore 3.0 credit score anytime. And it’s free and available what is credit mix to everyone—even if you’re not a Capital One customer. The impact of opening new credit on a credit score will vary from person to person.

  1. If you are having trouble getting approved, you can always look into secured credit cards, income-based credit products, or credit building debit cards.
  2. Your length of credit history accounts for 15 percent and the remaining 20 percent is evenly split between new credit and credit mix.
  3. Utility bills and charge cards are examples of open accounts, meaning they have to be paid in full every month and the amount varies.
  4. If you’ve opened credit or applied for credit recently, a lender will likely view you as a higher risk borrower because it is a sign you may be desperate for financing.

Showing that you can meet a fixed financial obligation therefore indicates you are a lower risk borrower and gets you some extra points. With revolving debt, you borrow money up to a certain amount (your credit limit) and pay it back – or pay a minimum payment, generally with interest, while carrying a balance. The amount owed can also be paid in full each month to avoid interest charges.

What is payment history and how does it impact your credit?

If you are having trouble getting approved, you can always look into secured credit cards, income-based credit products, or credit building debit cards. While FICO closely guards their proprietary algorithms for credit score calculations, they do give us a few hints on how the different credit management factors influence our credit scores. Your FICO credit score is built upon five main factors, and your credit mix is one of them. The Credit Mix portion of your score is a measure of your creditworthiness based on the types of credit lines you have open.

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It isn’t just the number of each type of account you have, but how each account relates to others among all categories, and how they interrelate with the other score factors. We believe everyone should be able to make financial decisions with confidence. If you want to make your credit score as perfect as possible, however, having credit mix will help you get there. Building a financially secure future is a game of inches, so even a portion as small as 10% of your credit score should be taken seriously.

Before you sign up for either, be sure that they will be reported to the credit bureaus. This concept is sometimes hard for people who have a bunch of credit cards to fathom; they simply don’t understand why their score is not higher. After all, the reasoning may go, they have the best cards—maybe even the hardest ones to qualify for, and they pay on time each month—and yet their score is not where they think it should be. Oftentimes, the culprit is no or limited credit mix in their portfolio. When it comes to credit scores, payment history and credit utilization seem to grab the headlines.

Credit mix: What is it and how it affects your score

As noted above, 10 percent of your total FICO score comes from your credit mix. In the VantageScore model, age of credit and credit mix are combined to make up 20 percent or 21 percent of your total score, depending on the score version. But either way, this factor is more important in the VantageScore model, at least as far as the breakdown of components go. Although there appears to be a degree of simplicity involved in the types-of-credit category, it’s actually rather complicated to quantify the actual effect on your score.

What is credit mix, and how does it affect your score?

Paying off a loan shows creditors that you are responsible enough to pay off your debts, but the account is no longer factored into your credit mix once the loan is paid off and closed. Having a good balance of different credit types will benefit the credit mix portion of your score. Having too few accounts, having only one kind of account, or unnecessarily closing your accounts could damage the credit mix portion of your score.

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Even if you repay a payday loan on time every month, it won’t factor into your credit report. Each credit bureau has a slightly different way of calculating your credit score using your credit history. If you have no credit accounts in your credit report, the easiest way to improve your credit mix is to open a credit card and make minimum payments on time.

You can also pay off your installment loans at the agreed upon steady rate as opposed to paying off a loan in full if you have the money to do so. Revolving credit doesn’t have a specific balance and its due date varies depending on how often you access this type of credit. Credit mix matters to lenders because making a fixed payment each month is harder than varying payments to suit your financial situation.

Just like nearly every other factor, where you are on the credit score scale will in large part determine how much your credit mix—or more specifically, the lack thereof—will affect your credit score. If you have a well-established or relatively “fat” file, this factor may be icing on your credit cake. But if your file is “thin” (you are new to credit or other factors), the effect can be more pronounced. If you have only a student loan or an auto loan, consider a starter credit card that you are likely to qualify for — or begin with a secured credit card, which is easier to get. Our partners cannot pay us to guarantee favorable reviews of their products or services. Mortgage accounts may differ from other types of installment loans, as the interest rate can be fixed or variable.