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The two most utilized credit scoring methods — FICO and VantageScore — factor your ability to manage different types of credit and loans into your credit score.
What is credit mix?
Credit mix refers to the different types of credit accounts that appear on your credit report. When referring to credit scores and credit mix, it’s a specific category that makes up some of credit score.
Credit mix makes up 10% of your FICO score. VantageScore doesn’t disclose the exact percentage of your credit score that your credit mix composes, but states that your credit mix is an important factor(1). It’s predicted that credit mix and credit age may hold a combined weight of 20% of your VantageScore(2).
What is factored in credit mix?
Credit mix is the combination of revolving credit and installment credit that appears on your credit reports.
A good example of revolving credit is a credit card. The debt is “revolving” in the way that you can borrow up to a certain amount, pay off the balance, and then use the credit again. If you have an owed balance, you’ll have to make minimum payments each month until the balance is paid off.
Installment credit is a long-term debt agreement, which can include things like mortgages, student loans and auto loans. With these, you borrow a set amount, and then repay it over time. Once the loan is repaid, you don’t get to access those funds again like you would with a credit card.
Lenders like to see that you can manage both revolving credit and installment loan accounts in good standing, because it shows that you can handle repaying both types and manage multiple accounts.
What’s a good credit mix?
In general, a good credit mix comes from having a variety of credit accounts in good standing reported. At a minimum, it’s recommended to have at least one revolving credit account and at least one installment credit account.
Hot tip: Credit mix is a small factor
Compared to the other categories that make up your FICO credit score, credit mix is a very small factor; only 10% of your total score. The most important factor is payment history (35%) and it’s likely the thing a lender is most concerned about when considering your ability to repay debt. We’re not saying to ignore credit mix, but just remember it’s a smart portion of your score compared to other categories.
Types of credit mix
The following are the types of revolving and installment credit that are included in your credit mix, according to Experian(3):
Payday loans, buy-now-pay-later loans and title loans aren’t included as part of your FICO credit mix.
How to improve your credit mix
To improve your credit mix, you can open a credit card or take out a secured personal loan. Again, be sure that you can make the required monthly payments for both.
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.
When you pay off an installment loan, it reduces your credit mix, which can technically hurt your credit score. In this type of scenario, you’ll have to take into account how important the state of your credit mix is compared to the rate of interest you’re paying on your installment loan.
Bottom line
Credit mix is an important component of your credit score. It’s important to build credit by successfully managing different types of credit accounts.
And remember that while establishing a good credit mix on your credit report is important, it’s essential that you’re able to make the agreed upon payments on your debt each month if you want to keep your credit score in good standing.
Frank Corva is business-to-business (B2B) correspondent for Bitcoin Magazine and formerly the cryptocurrency writer and analyst for digital assets at Finder. Frank has turned his hobby of studying and writing about crypto into a career with a mission of educating the world about this burgeoning sector of finance. He worked in Ghana and Venezuela before earning a degree in applied linguistics at Teachers College, Columbia University. He also taught writing and entertainment business courses in Japan and worked with UNICEF in Namibia before returning to the US to teach at universities in New York City. Earlier in his career, he spent years working as a publicist and graphic designer for record labels like Warner Music Group and Triple Crown Records. During that time, he was also a music journalist whose writing and photography was in published in Alternative Press, Spin and other outlets.
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A good credit score falls in the 670 to 749 range. A credit score of 750 and above is considered very good or excellent.
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