What You Need to Know About Credit Mix

by Courtney Christensen

The five components of your credit score: payment history, utilization, length of credit history, new credit, and credit mix, all factor into your credit score. However, some of these components are more important than others. Payment history (or whether you pay your bills on time) and utilization (or the amount you still owe) are definitely considered the most important factors. Credit mix, on the other hand, is probably the least important. Not only does it make up only 10% of your total score, but it’s also not vital to getting and maintaining a good credit score.

Instead, a good mix of credit should be treated as bonus points! You can perfect your credit score by having a healthy credit mix. Credit mix is actually more beneficial as a tool for boosting your payment history and utilization points.

Keep the Balance

Overall financial health is really centered on your ability to keep a balance with your saving and spending. A financially healthy person uses budgets and self-restraint to spread their income between needs, wants, and savings. Additionally, the people who have the most stable position in the stock market are those that diversify their portfolio. Your credit mix uses the same theory. Balance is key.

Types of Credit

There are two types of credit that are assessed for your credit mix score. These are revolving credit and installment credit. Revolving credit is anything that renews without an end date with varying monthly payments. Examples of revolving credit are bank credit cards, retail cards, gas station cards, etc. Installment credit refers to loans with a specific end date and a relatively stable monthly payment. This includes student loans, auto loans, and mortgages.

Healthy Mix

Having the right credit mix is important, not only for this portion of your credit score, but for the others as well. When it comes to how many lines of credit you should have, and the mix of the two types, the general rule of thumb is two of each. Two installment loans and two revolving credits. For example, if you have an auto loan and a student loan, plus a Target card and a credit card through your bank – you’ve got a perfect credit mix.

Effect on the Rest of Your Credit

We mentioned earlier that credit mix is of relatively low importance. Most lenders care more about whether or not you pay your debts instead of how many credit cards you have. However, credit mix can affect other areas of your credit score – particularly if you are financially irresponsible.

Payment History: If you have too many credit cards that you are unable to make your payments on time, your payment history will take a hit. As the largest part of your credit score, this can be detrimental for a long time.

Credit Utilization: If you max out your two credit cards on a frequent basis, it will reflect poorly in this area.

New Credit: Don’t make the mistake of opening several lines of credit at once if you’re trying to boost your credit mix score. Opening too many lines of credit in a short amount of time will damage this section of your score.

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