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A Quick Guide to Your Credit Mix

Your Fix of the Mix

We all know the importance of having a good credit score.With a high credit score, you can open to door to better interest rates, loans, benefits and more! Good credit can be the deciding factor in whether or not you get approved to rent a home or get a particular  job. Therefore, it’s  is important to  fully understand the various factors that make up your credit, including the credit mix.

To clarify, credit mix is not the most important factor in determining your score. Your payment history carries the majority of the weight, followed by your credit utilization rate and then your credit history and longevity. The good news is, your credit mix comprises  only  10% of your credit score! In the end, your credit mix determines your credit health and can be a beneficial indicator of your credit prowess!

What are the two types of credit accounts?

What exactly is credit mix you might ask? Credit mix refers the different types of accounts associated with your credit report and usually fall into two categories:

  1. Installment loans, in which you borrow a specific amount and have payments due each month for a specific amount of time.
  2. Revolving credit, in which you borrow as much you need and pay it back in either a minimum or full payment until the amount owed is fully paid.

Examples of installment loans are home loans, auto loans, and personal loans. Revolving credit refers  to credit cards; although home equity lines of credit are another example.


Understanding Credit Mix - Dollars And Points

What is a healthy credit mix?

If you are looking for a healthy credit mix you will want an even mix of both installment loans and revolving credit .Having a mortgage or auto loan along with a couple of credit cards should set you up with an even credit mix and will reflect positively on your report. On the other hand, if you have only credit cards listed on your report, it can reflect poorly and harm your credit report in the long term.

Now, what happens if you have a few credit cards, but have your vehicle paid off and are all set on your home? Should you take out a personal loan so that you have an installment loan in the mix?

Not necessarily. It is not usually a good idea to borrow money when you don’t need to.Remember, your credit mix makes up only 10% of your credit score.If you are doing well in areas of your credit that hold more weight, such as  credit utilization and payment history then you are more likely to maintain good credit even if your credit mix isn’t as developed as you would like. There is not reason for additional expenses to try and diversify your credit mix!


Should I worry about my credit mix?

Every aspect of your credit is important, but don’t fret too much over your credit mix! Not everyone  has that classic mortgage-car loan-credit card mix of accounts. If your score is already high, your credit mix is one of the last things you should worry about! Instead you should focus on keeping your payment history in line and avoiding applying for too many new credit accounts at once.

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Author- Joe Peters

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