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. Let’s say you have some savings built up and a car loan that is a few months shy of being paid off. But, if this is the only installment account you have reporting, paying off the loan could hurt your credit score.
- Your balance determines your minimum payment and there is no set end date to your agreement.
- This type of credit includes mortgages, student loans and auto loans, and it’s sometimes referred to as “non-revolving credit”.
- If you use them responsibly, you show lenders that you can handle a variety of different credit accounts.
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If both of you are approved for an auto loan and add it to your credit mix, the effect on your scores will be different. Generally, there are four different types of credit accounts you may find on your Equifax credit report. When you or a prospective lender pulls your credit report, there’s a list of all the credit accounts that exist (or have existed) in your name. 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.
All other accounts are one of two types—either revolving or installment. Revolving accounts are your credit cards and lines of credit you have access to that do not have a fixed monthly payment. Your balance determines your minimum payment due each month and there is no set end date to your agreement. Installment accounts include mortgages, auto loans and student loans.
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This is a good first step in monitoring your credit as it presents you with a clear snapshot of your financial picture. Credit reports list your personal information, account details, inquiries and public record data. When reviewing your credit report, there should be a section that indicates your different credit accounts. Having only revolving accounts or only installment accounts open will have a negative impact on the Credit Mix portion of your score.
While you can’t change these numbers overnight, paying your bills on time over months and years will help you as your credit history lengthens. Typically, a good credit mix includes a variety of different types of credit. If you use them responsibly, you show lenders that you can handle a variety of different credit accounts.
An installment loan is a loan that’s paid back, generally with interest, through regular payments over a period of time, and the payment amount typically stays the same. Mixing it up is just as important—but often overlooked—when it comes to credit. Commonly used FICO® Scores☉ count your mix of credit as 10% of your overall score.
What Is a Good Credit Mix?
In the short term, having several hard inquiries on your credit caused by applying for new products will harm your score and it may cancel out the positive effects of diversifying your credit types. Instead of spacing out the balance equally over a certain length of time, a minimum payment is due each month. Consumers can choose to pay more than the minimum but are not required to. The third most important factor is the length of credit history, which is the average age of all your credit accounts. These are counted from the date you opened the account and include only currently active loans or lines of credit.
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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. If your existing credit lines currently being reported consist of just student loans or a car loan, then your best course of action for improving your credit mix would be to open a credit card. You have installment loans, so a revolving credit account will improve your credit mix. CreditCards.com is an independent, advertising-supported comparison service.
What is credit mix, and how does it affect your score?
If you only have one or two revolving accounts open, closing one will definitely hurt your score. Closing one of your older accounts will reduce the length of your credit history and closing a credit card could raise your credit utilization rate. The bottom line is finding a “healthy mix” for your credit score, meaning a mix you can handle without putting an undue strain on your monthly budget. I don’t believe you need a fistful of credit cards, a mortgage and a car loan to enjoy the benefits of a good credit score. One or two credit cards, perhaps even one of today’s best credit cards, and maybe the same in the installment credit category will afford you the benefits of this portion of your credit score. Simply put, credit mix means the various types of credit accounts you own.
While we adhere to stricteditorial integrity,this post may contain references to products from our partners. Your lender or insurer may use a different what is credit mix FICO® Score than FICO® Score 8, or another type of credit score altogether. Amanda Garland is a personal finance blogger living in Dallas, TX.