Types of Credit and How They Affect Your FICO Score

Simply put, a credit mix refers to the types of different credit accounts you have – mortgages, loans, credit cards, etc. It’s one factor generally considered when calculating your credit scores, although the weight it’s given may vary depending on the credit scoring model (ways of calculating credit scores) used. In general, lenders and creditors like to see that you have a diverse credit mix – that is, you’ve been able to manage different types of credit accounts responsibly over time. The total amount you’ve borrowed affects your credit score, as does the portion of your available credit tied up in outstanding balances. It is also one of the factors that’s most responsive to your actions.

Should You Pay for Credit Repair Services?

10 years ago, she was living paycheck to paycheck and knew nothing about credit. Now she has a friendly competition going with her husband to see who can reach an 850 credit score first. She has a Bachelor of Fine Arts degree in Creative Writing and recently started her own blog on saving money while raising a baby. These accounts will give this individual a nice mix of credit types and help to protect them from a significant score drop when they close an account. Ideally, you’ll want at least one of your accounts to be an installment loan and two or more of the remaining accounts to be revolving accounts.

How to Handle Collection Accounts on Your Credit Report

Whether you’re looking to compare mortgage types, calculate a new auto loan payment or get your savings plan in order, we have the calculator for you. PrimeWay is here to help you achieve all of your goals and we want to be your financial partner. We offer flexible terms and competitive rates on our selection of loans that will work with your budget and fit your life. If you find inaccurate details, follow the dispute process with Experian and the other credit bureaus to initiate an investigation. The length of your credit history accounts for about 15% of your FICO® Score. Your FICO Score is calculated only from the information in your credit report.

Installment Account

• Installment loans are loans in which you receive a lump sum and then repay it in regular installments over time, such as with personal loans, auto loans, student loans, and mortgages.
• So, whether you’re a student just starting to build credit or a seasoned borrower looking to improve your credit score, consider diversifying your credit mix to achieve better financial health.
• They are calculated based on the five categories referenced above, but for some people, the importance of these categories can be different.
• Keep in mind that your credit mix may be one of the smaller factors in credit score calculations, depending on the credit scoring model used.

With revolving debt, you borrow money up to a certain amount (your credit limit) and pay it back – or pay a minimum payment, generally with interest, while carrying a balance. The amount owed can also be paid in full each month to avoid interest charges. Once that amount has been paid back, it is then available to be borrowed again. An example of revolving debt would be credit cards or lines of credit. To improve your credit mix, you can open a credit card or take out a secured personal loan. Again, be sure that you can make the required monthly payments for both.

However, having a strong payment history, low credit utilization, and long credit history may outweigh the impact of having a limited credit mix. With these other factors cumulatively making up 90% of your credit score, establishing a good credit mix is useful but not critical if you want to see major improvements in your credit score. To do that, focus on making credit card and loan payments on time, keep your credit utilization ratio low, and maintain a long credit history while refraining from opening unnecessary credit cards. You establish your credit mix by applying for and maintaining various types of credit accounts, from revolving accounts like credit cards to installment accounts such as mortgages and other loans. Namely, a good credit mix means you have both revolving and installment accounts, as well as a blend of different types of each.

However, lenders may look at many things when making a credit decision, such as your income, how long you have worked at your current job, and the kind of credit you are requesting. In addition, as the information in your credit report changes, so does the evaluation of these factors in determining your FICO Scores. They are calculated based on the five categories referenced above, but for some people, the importance of these categories can be different. For example, scores for people who have not been using credit long will be calculated differently than those with a longer credit history. While your credit mix isn’t the most important aspect of your score, improving it can make a difference.

How much credit mix affects your scores depends on the credit-scoring model. FICO® and VantageScore® are two credit-scoring companies that provide some of the most commonly used scores. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Secured credit cards are another good option for those just starting out (or starting over) or worried about getting over their heads in debt.

FICO says that consumers with responsibly managed credit cards in their credit mix tend to have higher scores than consumers with few or no credit cards in their credit mix. Does that mean you should start applying for all the types of credit lines you don’t currently have? Your CreditWise score is calculated using the TransUnion® how does credit mix affect credit score VantageScore® 3.0 model, which is one of many credit scoring models. Your CreditWise score can be a good measure of your overall credit health, but it is not likely to be the same score used by creditors. The availability of the CreditWise tool depends on our ability to obtain your credit history from TransUnion.