What’s Your Credit Mix?

| Tedis Baboumian |

Your credit score is based on a combination of several different factors, one of which is known as your credit mix. What’s your credit mix? This refers to the different types of credit accounts you have. Creditors may want to see a mix of different types of credit such as mortgages, credit cards, student loans, car loans or personal loans.

How Important is Your Credit Mix?

Your credit mix isn’t one of the most important factors that go into calculating your credit score. The amount of impact it has depends on the scoring model used. The FICO score is one of the most commonly used credit scoring models, and in this model, your credit mix only contributes 10 percent of your credit score. Other factors that affect your credit score include payment history, total amount owed, age of accounts and recent credit inquiries.

Why are Creditors Looking for a Diverse Credit Mix?

Having a diverse credit mix shows potential lenders that you have experience handling several different kinds of accounts. Different types of accounts include:

  • Mortgage accounts – This is a long-term debt over several years that can be affected by a fixed or variable interest rate.
  • Installment loans – This type of loan finances the amount you borrowed over a stated amount of time. You pay the same amount each month until the loan is paid off. Auto loans fall in this category.
  • Credit cards – When you have credit cards or other revolving debt, you can demonstrate your ability to pay at least your minimum payment each month and avoid borrowing more than you can pay back.

Your credit mix shows that you can handle fixed payment amounts as well as fluctuating payment amounts. A good credit mix includes a blend of installment credit and revolving credit.

Should You Pursue a More Diverse Credit Mix?

If you’ve just started building credit or if you’ve only had one type of credit up until now, you may wonder if you should get busy trying to get a more diverse credit mix. The answer is probably not. Trying to open too many new accounts too quickly can harm your credit. Another thing to avoid is closing accounts that you’re not using since this can impact the length of your credit history.

Taking Care of Your Credit

Your credit mix is a small part of your credit score. Taking care of your credit includes making sure that information about your different credit accounts are being reported correctly. Consumers are entitled to a copy of their credit reports each year from AnnualCreditReport.com. Look over your credit report and find out if anything is inaccurate.

If you do find errors, it’s important to dispute them right away. The easiest way to do that is by working with Dovly, an AI credit engine. Dovly can help you track, manage and fix your credit. Misinformation can hurt your credit score, and Dovly can help you bring it back up. Try it risk-free with our free membership tier.

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