What is a good credit mix to increase credit score? The credit mix is a combination of credit accounts on your credit reports such as car loans, credit cards, personal loans, student loans, mortgages, etc. Credit mix is typically, categorized into revolving credit such as credit cards and Home Equity Lines Of Credit (HELOCs), and installment loans like car loans and mortgages.
The credit mix accounts for 10% of your FICO score. For the VantageScore, the credit mix is combined with the age of your credit for 21% of your credit score. A good credit mix shows lenders that you can manage multiple types of debts, making you a good borrower.
While having multiple loans improves your credit mix, your credit mix won’t improve your credit score if you cannot manage your debts responsibly and make your payments on time. The best way to improve your credit mix is to have at least one revolving credit and an installment loan and apply for more loans over time as needed.
What is a credit mix?
There are many factors affecting your credit score and one of them is your credit mix. The credit mix is a combination of all types of loans and credit accounts on your credit reports including credit cards, loans, and mortgages. Lenders prefer borrowers with enough experience in handling different types of loans.
That is the more diverse the credit accounts you have open, the better your credit mix. To boost your credit mix, it is a good idea to have a combination of installment loans like car loans and revolving credit accounts such as credit cards.
When calculating your credit score, your credit mix accounts for 10% of your FICO score and 21% of your VantageScore when combined with the age of your credit.
How does the credit mix affect the FICO score?
All types of credit accounts on your credit reports such as retail accounts, installment loans, and credit cards make up your credit mix. The credit mix accounts for 10% of your FICO score. The better your credit mix, the more positive impact it will have on your credit score.
How does the credit mix affect VantageScore?
Credit reporting agencies(Equifax, TransUnion, and Experian) consider your credit mix in your VantageScore calculations. According to Credit Karma, the credit mix and credit age account for 21% of your VantageScore. Having a good mixture of credit accounts helps improve your credit score and creditworthiness, as long as you can keep up with your payments. Lenders prefer borrowers who can manage different types of accounts.
What is a good credit mix to increase credit score?
A good credit mix is essential for increasing credit score. Typically, you need a combination of different types of loans. So, how do you know if you have a good credit mix? An excellent credit mix should have a combination of the following accounts.
- Installment loans. These are loans where payments are made in equal monthly payments for the lifetime of the loan. A good example of installment loans include car loans, student loans, mortgages, personal loans, etc.
- Revolving credit accounts. These are accounts where the line of credit renews automatically as you use and pay off your balances. A good example of revolving loans includes credit cards, Home Equity Lines Of Credit(HELOCs), and personal lines of credit.
- Retail credit accounts. Besides regular credit card and loan accounts, some companies also offer different financing alternatives. For example, some retail stores offer retail credit cards used only for their stores. Retail accounts sometimes fall into the credit card category depending on the way they are set up.
You might also like: How to get a personal loan in 8 steps
What loans are not included in the credit mix?
While there are many types of loans you can have on your credit reports, not every loan is considered in your credit mix. Some loans do not qualify for your credit mix due to not showing up on your credit reports or are not considered for your credit score calculations.
According to Experian, payday loans, buy now, pay later loans, and auto title loans are not considered in your credit mix. While these loans do not contribute to your credit mix, defaulting on them can negatively impact your credit score. For example, your lender can send the defaulted account to a debt collector resulting in a collection account on your credit report.
A collection account on your credit report is a negative item and will lower your credit score.
Here is a list of all negative items on your credit reports and how long they stay on your report.
What are the benefits of having a good credit mix?
Having an excellent credit mix improves your creditworthiness as it shows lenders that you can effectively manage different types of credit. As a result, your credit score benefits positively. That is why people with excellent credit scores usually have the best excellent credit mix.
How to improve your credit mix?
A good credit mix boosts your credit score positively and improves your creditworthiness. Why should you worry about your credit mix? Because an excellent credit mix shows your ability to handle multiple loans, making you a good borrower. I should also mention that you don’t need to accumulate too much debt to have a great credit mix.
However, you should at least have one installment loan and a revolving loan on your credit report to have a good credit mix.
Here are tips to improve your credit mix.
Have a good mixture of credit
To have a good credit mix, you need an installment loan and a revolving credit. Having a credit card and one installment loan such as a car loan or student loan will be enough to get started.
Avoid borrowing excessively
While having different types of credit accounts is good for you, taking on too much debt might do you more harm than good. The more debt you carry on your credit reports, the easier it is to miss payments and default on your loan. More debts also increase your debt-to-income ratio which is another factor lenders look for on your loan application.
You should also know that credit mix has a small impact on your credit score. Meaning, you don’t need to put a large emphasis on improving it as it only accounts for 10% of your FICO score.
While you can open your account, it might be difficult to qualify for a credit card if you are new to credit with a thin credit file. Becoming an authorized user of an established credit card account can help you build credit and benefit from its credit mix.
Focus on the long-term
Building credit is a matter of long-term view. Also, having a good credit mix won’t necessarily give you an 800 credit score as your credit mix is not the most important factor on your credit score. Remember your credit mix only affects 10% of your FICO score.
Instead of taking on too much debt and ruining your credit, focus on the long term and borrow only when it is needed. Throughout time, you will naturally take out different loans which will improve your credit mix.
Do I need a good credit mix to have an excellent credit score?
The quick answer is no. You don’t need an excellent credit mix to have an 800 credit score. For example, I built my credit score to 825 only using three credit cards which are all revolving credit accounts. But, having a good credit mix helps you build your credit faster.
You should also keep in mind that your credit mix only accounts for 10% of your credit score which is a small impact compared to payment history and credit utilization at 35% and 30% respectively.
Does my credit score drop when I pay off my loan?
Since credit mix affects credit score, it is essential to have a good credit mix. Installment loans and revolving credit are what is needed to have a good credit mix. So, what happens to your credit score when one of your installment loans is paid off?
Does your credit score drop when your car loan, mortgage, or student loan is no longer on your credit report?
Yes, your credit score can drop when you pay off one or more of your loans since you lose an account with a good credit history. For example, it takes many years to pay off a mortgage. That also means you establish a good credit history with the account. Losing such an account also means your credit history could be affected lowering your credit score.
Paying off an installment loan could also weaken your credit mix which might drop your credit score. With consistent on-time payments and responsible use of credit, however, you can regain your points in a few months.
More credit score tips
Is Credit Karma score accurate: Which score is accurate for loans?
