It’s free for everyone—even if you’re not a Capital One cardholder—and using it won’t hurt your credit scores. Understanding credit mix and the role it plays in your credit scores is important if you’re trying to maintain your credit or improve your credit scores. And monitoring your credit can help you see exactly where you stand—as well as how much progress you’ve made.
In 2015, it introduced FICO XD, a new credit scoring model based on alternative data. 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.
If you’d like to work on diversifying your credit, first take a look at the types of accounts you already have. You borrow a set amount and then make monthly repayments in the same amount every month for the length of the loan. Revolving credit is a flexible form of credit that allows you to borrow as needed, and repay as needed. Our editors rate credit cards objectively based on the features the credit card offers consumers, the fees and interest rates, and how a credit card compares with other cards in its category. Ratings vary by category, and the same card may receive a certain number of stars in one category and a higher or lower number in another.
Here’s everything you need to know about types of debt, credit mix, and how to optimize this aspect of your credit rating. Whether you’ve already established a credit history or you’re wondering how to get started building one, you may not know what a “credit mix” means – or how it may affect your credit scores. This shows the credit bureaus that I’m able to maintain a wide variety of credit types responsibly. But again, the more important factor is the fact I have a 100% payment history.
- Revolving credit is credit in which you can use up to a certain limit, such as with credit cards or home equity lines of credit (HELOCs).
- Credit mix refers to the types of accounts that make up your credit report.
- When reviewing your credit report, there should be a section that indicates your different credit accounts.
- Your length of credit history accounts for 15 percent and the remaining 20 percent is evenly split between new credit and credit mix.
- If the lender or creditor reports to one or both of the nationwide credit bureaus, your mortgage account typically shows up on credit reports provided by that bureau or bureaus.
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Your length of credit history accounts for 15 percent and the remaining 20 percent is evenly split between new credit and credit mix. When you or a prospective lender pulls your credit report, there’s a list of all the credit accounts that exist (or have existed) in your name. If both of you are approved for an auto loan and add it to your credit mix, the effect on your scores will be different. A positive history of on-time payments is considered the most important credit-scoring factor. Whether you’re working to build your credit score or maintain a good credit score, it’s important to monitor your credit regularly.
What is credit mix, and how does it affect your score?
Credit mix is important because lenders like to see that you have been responsible with managing a variety of credit types. In general, if you have a wider variety of debt types in your credit report, your score will be higher. The information in this article is believed to be accurate as of the date it was written. Therefore, we cannot guarantee the accuracy of the information in this article.
So for example, if you’ve never had an installment debt in your name then that might work against you for credit scoring purposes where credit mix is concerned. Or if you’ve only ever had student loans and never opened a credit card, then lenders might see your credit mix as being less diverse. Many of what is credit mix the credit card offers that appear on this site are from credit card companies from which CardRatings.com receives compensation.
Keep in mind that your credit mix is generally one of the smaller factors in credit score calculations. Revolving credit (such as credit cards) illustrates to lenders that you are able to borrow varying amounts of money each month and consistently pay it back. Meanwhile, installment credit (such as loans) demonstrates your ability to uphold a long-term agreement and make fixed, on-time payments until you repay what you borrowed. It considers your credit diversity, or the different types of credit you have on your credit reports. Different factors go into shaping your credit scores, including your credit mix or the types of credit you use. While credit mix doesn’t have the same impact as payment history or credit utilization for FICO credit scoring purposes, it still makes a difference to your overall scores.
This can include revolving credit, like credit cards, and installment credit, like car loans and mortgages. Credit mix is a credit scoring factor that refers to the types of debt and credit products that you have. The types of credit you have might include credit cards, installment loans, and retail accounts, which we’ll touch on more below.
See the online credit card application for full terms and conditions on offers and rewards. Please verify all terms and conditions of any credit card prior to applying. Utility bills and charge cards are examples of open accounts, meaning they have to be paid in full every month and the amount varies. A mortgage or car loan are examples of installment accounts, requiring a set amount to be paid in full each month. FICO’s scoring formula looks at both the number and variety of accounts listed on a borrower’s credit report.
Some American Express cards are examples of charge cards, as opposed to credit cards. The offers that appear on this site are from companies that compensate us. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
Installment Credit
Simply put, a credit mix refers to the types of different credit accounts you have – mortgages, loans, credit cards, etc. It’s one factor generally considered when calculating your credit scores, although the weight it’s given may vary depending on the credit scoring model (ways of calculating credit scores) used. In general, lenders and creditors like to see that you have a diverse credit mix – that is, you’ve been able to manage different types of credit accounts responsibly over time. In general, lenders and creditors like to see that you’ve been able to manage different types of credit accounts responsibly over time. Credit mix refers to the types of accounts that make up your credit report.
- Whether you’re applying for a loan, a credit card, or even a job, your credit score plays a…
- Yes, a diverse credit mix can positively impact your credit score, as it demonstrates your ability to manage different types of credit responsibly.
- The downsides of taking on additional debt typically outweigh the small boost you might get from improving your credit mix.
- An example of these would be monthly contract-based mobile phone plans.
Your Credit Score Should Be Higher — 5 Factors That Could Be Holding It Back
Loans like a mortgage or auto loan are also considered a form of credit. And what the credit bureaus are looking for in evaluating your credit portfolio is a healthy mix of different types of credit. That’s because FICO says having a variety of loans is necessary to maximize your credit score. If you don’t have several different types of loans, it won’t kill your score. After all, the “types of credit” component is the least important of the five factors in FICO’s formula. But if you’re striving for scoring perfection, a good credit mix can push you toward the top of the range.
Your car payment or student loan, for which you make the same, fixed payment on each month, counts as installment credit. With this type of credit, you have a set balance divided out equally into a series of payments due each month until the specified end date. Your credit card account, which you charge and make varying payments on each month, counts as revolving credit.
Remember, how you handle your credit mix gives lenders an idea of your ability to handle a variety of different credit accounts. This might explain why credit mix is one of several factors that impact your credit scores. A great credit mix only works if you make timely payments on all accounts and avoid taking on more credit than you can comfortably manage. “If you’re not careful, taking on additional credit may leave you in a worse position than before, with timely payments remaining the largest factor in determining your credit score,” Kullberg says.
Learn more about Credit management
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. Credit card beginners should start with cards that are geared toward building credit. For example, the Capital One Platinum Secured Credit Card has no annual fee and varying minimum security deposits starting at $49, $99 or $200 — based on your creditworthiness.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. Highlights shown here are provided by the issuer and have not been reviewed by CNBC Select’s editorial staff. How credit diversity influences your scores depends on your unique track record with credit. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia. Enter your phone number below and we’ll send you a link to download the app to set up your account. Please disable your adblocker to enjoy the optimal web experience and access the quality content you appreciate from GOBankingRates.