The Significance Of A Good Credit Mix
A credit mix refers to the different types of credit accounts that you have which make up your credit report such as; mortgages, credit cards, student loans, auto loans etc. The impact of your credit mix on your credit score varies according to the credit scoring model being used, but generally it will make up a small amount of your credit score and just shows lenders how well you’ve been able to manage different types of credit accounts over time.
Generally, the types of credit accounts that are taken into account of your credit mix are:
- Installment loans – where the loan is paid back over a period of time, often with interest, through regular payments until it has been repaid in full and the account is then closed. E.g. an auto loan.
- Revolving debt – where you borrow money within your credit limit and pay back that amount or a minimum payment whilst carrying a balance, often with interest but this interest charge can be avoided if the amount owed is paid back in full each month. E.g. most credit cards.
- Open accounts – where the balance is due to be paid in full each month rather than allowing payment over time. E.g. collection accounts and some credit cards.
- Mortgage accounts – although these are technically a type of installment loan, they differ due to their interest rates which can be fixed or variable.
Where credit mix is often a small part of the calculation of your credit score, don’t stress too much about how many types of accounts you have open. Just be cautious about when you open a new account or close an account that you have paid off and check whether it could negatively impact your credit utilisation rate and credit history before looking at how it affects your credit mix.
Has our credit score series has made you curious to know more about your credit score?
You can access a detailed copy of your own credit report through CheckMyFile.*
*Where you access the services of CheckMyFile through the link above, Lendwise will receive a small affiliate fee.