Credit mix: What is it and how it affects your score
Credit diversity makes up 10% of your FICO score. So, what is it?
Credit mix refers to the different types of credit accounts that appear on your credit report.
So, while it’s important to consider your credit mix, keep in mind that a diverse credit mix may do more harm than good if you don’t manage your debt well.
What is credit mix?
Credit mix is the combination of the revolving and installment credit that appears on your credit report.
Revolving credit doesn’t have a specific balance and its due date varies depending on how often you access this type of credit. The most common form of revolving credit is a credit card.
Installment credit is a long-term debt agreement like a loan. This type of credit includes mortgages, student loans and auto loans, and it’s sometimes referred to as “non-revolving credit”.
Lenders like to see that you can manage both revolving credit and installment loan accounts.
What’s a good credit mix?
A good credit mix is credit diversity, or a blend of revolving and installment credit.
Maintaining a mix of different types of credit accounts makes up for 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).
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):
- Credit cards
- Home equity line of credit
- Student loans
- Auto loans
- Personal loans
Payday loans and title loans aren’t included as part of your credit mix. Keep in mind that you don’t just want to show that you have a good credit mix but that you can meet your monthly payment obligations for the debt you’ve taken on.
How to improve your credit mix
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.
Credit mix is an important component of your credit score. It’s important to build credit by successfully managing both revolving and installment 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.
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