There are several factors used to determine your credit scores, including your “credit mix,” or the types of credit accounts you have in your name. But even though having more than one type of credit can be helpful to your scores, having more credit can affect other parts of your scores as well, like credit utilization. Therefore, it’s important to understand what this factor is to your scores and other ways this factor can affect your scores. So, what’s your credit mix? Read on to find out why it matters.
How Credit Mix Affects Your Credit Scores
Credit mix is important to your credit scores because lenders want to see how you handle the type of credit they’re offering. If you only have one type of credit, say only a loan or only a credit card, then it’s not as clear to lenders how you’ll handle the other type of credit.
This is why credit mix matters to your credit scores. However, the direct influence is not as impactful as other factors like payment history and credit utilization. Here’s a look at how one of the major credit scoring companies, FICO®, ranks credit mix:
|FICO® Credit Score Factor||Percentage|
|Length of credit history||15%|
As you can see, credit mix only makes up 10 percent of your FICO® credit scores. Now, here’s a look at how the other major credit scoring company, VantageScore®, factors the same thing:
|VantageScore® Credit Score Factor||Level of Influence|
|Payment history||Extremely Influential|
|Type of credit and duration of credit||Highly Influential|
|Credit utilization ratio||Highly Influential|
|Total debt||Moderately Influential|
|New credit inquiries||Less Influential|
|How much available credit you have||Less Influential|
For VantageScore®, credit mix doesn’t even get its own slot in the list of factors. Instead, it’s grouped together with your credit history (duration of credit), and the two together are considered to be highly influential.
The question that remains is how much should this factor matter to you in your efforts to build or improve your credit.
FREE TOOL: Are mistakes on your credit report hurting your credit scores? Find out here.
How Important Is Your Credit Mix?
In an effort to fix your credit, you might find yourself looking for everything you can do to help. However, trying to improve your credit mix could mean applying for credit you don’t need. And that’s something credit scoring companies don’t advise. Here’s what myFICO.com has to say about it:
“FICO® Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It’s not necessary to have one of each, and it’s not a good idea to open credit accounts you don’t intend to use.”
Therefore, if you don’t have a credit mix, you don’t necessarily need to open new credit just because of that. What’s more, credit accounts factor into your score in other ways too. For example:
- Every credit account you have factors into your credit history, which is good. According to VantageScore®, “a mix of accounts (credit cards, auto, mortgage) and a longer history will improve a credit score.”
- Every credit account you make payments on will affect your credit for better or worse. If your payments are always in full and on time, that will help. If you pay late, even once, that can hurt your scores.
- The amount of debt you carry can hurt your credit scores if it’s too high, especially regarding your credit utilization. Experts advise keeping total revolving credit balances below 30 percent of total credit limits.
Adding it all up, if you open a new credit account just to improve your credit mix, but then pay late on it or carry a balance that increases your credit utilization, then you could be hurting your credit more than helping it. When it comes to building credit, remember to view the factors that influence your score in a holistic way.