Your credit mix, or the different kinds of credit accounts you have, makes up 10% of your credit score. A good mix of credit can help your score, but it’s not the most important thing. If you want to improve your credit mix, let’s look at what a good credit mix looks like.
What is Credit Mix?
Credit mix refers to the variety of credit accounts you have open. This includes installment loans like mortgages, student loans, and car loans, as well as revolving credit like credit cards.
Lenders want to know that you can responsibly handle different types of credit. This demonstrates that you are a lower-risk borrower. Lenders can see that you know how to handle and pay back different types of credit if you have a good mix.
Credit mix only makes up 10% of your FICO or Experian score, but it can help move your score into the “excellent” range over time. A good credit mix won’t make or break your ability to get new credit, but it is something to keep in mind if your goal score is 800.
Types of Credit Accounts
There are two main categories of credit – revolving and installment.
Revolving Credit
Revolving credit accounts have a credit limit and allow you to borrow, repay, and re-borrow up to that limit. Common revolving accounts include:
- Credit cards
- Retail credit cards
- Home equity lines of credit (HELOCs)
- Personal lines of credit
When you use revolving credit, your balance changes every month based on how much you spend and pay off. You don’t have a set date to pay off the whole amount.
Installment Credit
With installment loans, you receive the full loan amount upfront and repay it in equal installments until the loan is paid off. Common installment loans include:
- Mortgages
- Auto loans
- Student loans
- Personal loans
Installment accounts have set monthly payments and a fixed payoff date. Your balance goes down each month as you make payments.
What is a Good Credit Mix?
There is no single ideal mix for an excellent credit score. At minimum, you’ll want at least one revolving account and one installment account.
Over time, responsibly managing different types of credit will naturally improve your mix. For example, a recent graduate with just a student loan can boost their mix by opening their first credit card.
A good benchmark is having 3-4 open tradelines (credit accounts reported to the credit bureaus) with a combination of installment and revolving credit. Many people have:
- 1-2 credit cards
- An auto loan
- A student loan and/or mortgage
This demonstrates you can handle different types of borrowing responsibly.
How to Improve Your Credit Mix
You don’t need to open accounts just to improve your mix – this can actually hurt your credit if done irresponsibly. A better approach is letting your mix evolve naturally over time. Here are some tips:
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Only apply for credit you need. Don’t open accounts just for the sake of credit mix. But do consider mix when applying for credit you need – like a new credit card with better rewards or an auto loan for a new car.
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Become an authorized user. Ask a family member with good credit to add you as an authorized user on a credit card. This can give your credit mix a jumpstart.
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Avoid too many applications. Applying for several accounts in a short timeframe can damage your credit. Space applications out over time.
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Monitor your credit. Keep an eye on your credit reports and FICO or Experian score. This helps you track your mix and overall credit health.
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Use credit responsibly. Make on-time payments, keep balances low, and avoid frequent credit applications. Good credit habits make your mix look better to lenders.
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Be patient. Improving your credit mix takes time. Let it evolve slowly alongside other positive credit behaviors.
Credit Mix and Credit Score
While credit mix has a relatively small impact on your overall score, it can help inch you over the threshold to excellent credit.
For example, someone with a 760 credit score has pretty good credit. But improving their mix of accounts could potentially boost their score to over 800, which is exceptional.
Even if your score is already excellent, optimizing your mix can help protect that high score and prevent dips.
The Bottom Line
Your credit mix probably isn’t something to stress over in the short term. As you take out loans and open accounts you actually need over time, your mix will naturally improve.
Focus first on responsible credit behaviors – on-time payments, low balances, etc. Then let your mix evolve alongside other positive habits. With patience and good credit management, you can build an optimal mix to help maximize your credit score.
Credit mix determines 10% of a FICO® Score
So, what does it mean to you and your FICO Score? Creditors assess the risk of lending money through a variety of factors, one of them being your ability to successfully manage different types of credit. FICO not only looks at the mix of credit you have but also at the payment history of these credit types. For instance, if you have a great mix of installment and revolving loans, yet your payment history is bad, your FICO Score will reflect that negative payment history, which represents 35% of your FICO Score.
For creditors, it stands to reason that the better you manage different loans and lines of credit, the lower their risk when lending you money.
Again, since credit mix is only 10% of your FICO Score, it most likely wont determine whether or not you obtain credit from lenders. However, if youre striving to bring your FICO Score to the highest level it can be, your credit mix can play a part.
Types of credit accounts
Do you have experience with both revolving credit and installment type accounts, or has your credit experience been limited to only one type?
Revolving accounts are those that provide you with credit that allows more flexibility regarding the amount paid monthly (subject to any minimum payments required, and payment due dates, etc.). Some of these include:
- Credit Cards
- Retail Store Cards
- Gas Station Cards
- HELOC (Home Equity Line of Credit)
These types of accounts usually require a fixed payment each month until the balance is paid down in full. A few examples of these are:
- Mortgage
- Auto Loan
- Student Loan
Now that you know more about credit mix, check out the last FICO Score factor, new credit. See how new credit will affect your score.
What Is A Good Credit Mix For Your Credit Score? – Consumer Laws For You
FAQ
What is the ideal credit mix?
Quick Answer. Your credit mix encompasses the different types of credit accounts you have. An ideal credit mix includes a variety of both revolving accounts and installment accounts. Credit mix is a term used to describe the different types of credit accounts you have.
What is the 2/3/4 rule for credit cards?
The 2/3/4 rule is a credit card application restriction specifically used by Bank of America. It limits the number of new credit cards you can be approved for within certain timeframes.
How common is a 700 credit score?
A 700 credit score is a “good” credit score, and it’s relatively common. While it’s not the average, a 700 score is considered within the range of “good” credit.
What percentage of Americans have over 800 credit scores?