Credit Mix: What It is, How It Works, Examples

What Is a Credit Mix?

Credit mix refers to the types of accounts that make up your credit report. Credit mix determines 10% of your FICO score. The different types of credit that might be part of your credit mix include revolving or installment loans like credit cards, student loans, automobile loans, and mortgages. Credit mix might have a larger impact on your credit score if your credit history is particularly sparse.

How a Credit Mix Works

Credit scores take credit mixes into account in order to establish a more comprehensive profile regarding your payment history, trustworthiness, and ability to successfully manage different types of credit.

Having a mix of different types of loans on your credit report can have a positive impact on your credit score It accounts for 10% of your FICO credit score.

However avoid applying for loans or credit cards that you don't need just to improve the credit mix component of your credit score. Your credit mix is a fairly small part of your credit score, so not having a perfect credit mix likely won't affect whether a lender will approve a loan for you.

The downsides to trying to improve your credit mix opening new accounts include the fact that opening new accounts has a negative impact on your credit score. New credit also makes up 10% of your credit score. If you've opened credit or applied for credit recently, a lender will likely view you as a higher risk borrower because it is a sign you may be desperate for financing.

If you open new credit to improve your credit mix, then use that credit, you can increase your amounts owed, which is a much more significant factor in determining your credit score than credit mix.

Credit Mix and Credit Scores

Each credit bureau has a slightly different way of calculating your credit score using your credit history. The way new credit will affect your credit mix will and your credit scores will depend on a number of factors about your financial situation, including your current credit mix (whether it includes several types of loans or not) and whether you've recently opened other new credit.

The impact of opening new credit on a credit score will vary from person to person. Taking out an auto loan, for example, might have a greater effect on your credit score than someone else's, depending on your financial scenarios.

You may begin your credit history, for example, with a student loan, small personal loan, or secured credit card. As you earn more income, you can typically take on additional forms of credit like a mortgage, auto loan, or unsecured credit card.

With each new form of credit, your history will reflect a more diverse credit mix. By maintaining different types of credit over longer periods, both revolving credit and installment debt, you can demonstrate more financial responsibility.

The Bottom Line

Your credit mix plays a role in your credit score. While having a variety of credit types can improve your credit mix, you should avoid taking on more credit for that reason alone. Understanding how credit mix works and its role in your credit score can help you make better decisions toward your financial health.