What Does It Mean to Have a Good Credit Mix and How Does It Affect Your Scores?
FICO and VantageScore, the main two credit scoring companies, both consider your experience with different types of credit accounts, or your credit mix, when calculating your scores. And although it’s not the most important scoring factor, having and maintaining a good credit mix can be helpful if you want to improve your scores.
What does 'credit mix' mean?
Credit refers to the mix of different types of credit accounts in your credit report. By analyzing past consumer behavior, credit scoring companies have found that people who manage multiple types of credit accounts tend to miss bill payments less often.
As a result, having experience with loans and credit cards might help your credit scores. For example, if you’ve only ever had a loan—such as a student loan or car loan—opening a credit card could add to your credit mix.
Different types of credit
There are lots of different types of credit accounts: student loans, auto loans, personal loans, credit cards, secured credit cards, etc. But your credit mix doesn’t depend on such a granular inspection.
Instead, credit scores take a high-level look to see if you have revolving and installment credit accounts.
- Revolving credit: Credit cards are the most common revolving accounts, but personal lines of credit and home equity lines of credit are other examples. Revolving accounts don’t have a predetermined loan amount and monthly payment. Instead, you can borrow money, pay down the balance with minimum payments, and borrow again based on your available credit.
- Installment credit: Installment credit accounts include many types of loans. You receive the entire loan amount at the start and then make regular installments, or payments, over the repayment period.
You don’t need to have both types of accounts to get a good credit score. But understanding how your credit mix can affect your credit scores can still be important if you’re building credit for the first time or have bad credit and want to improve your scores.
How can a diverse credit mix help your credit score?
Having a diverse or “good” mix of credit accounts can be a yes-or-no question—do you have both installment and revolving credit accounts in your credit report? If you do, that can help your credit scores.
But there may be some nuance depending on the type of credit score. For example, the credit scoring model might more precisely ask whether you have revolving and installment credit accounts with balances.
Generally, that means you’re using a credit card and still paying off a loan. But some credit scoring models consider closed accounts with balances, such as past-due loans or credit cards, when determining your credit mix.
Keep in mind, credit mix isn’t the most important factor—it might only affect about 10% of your score. Making your payments on time and paying down revolving credit card debt to lower your credit utilization ratio might have a much bigger impact.
Does not having a good credit mix hurt your credit score?
You won’t get the maximum number of points in the credit mix category if you don’t have both types of credit accounts. And even if it’s not a major scoring factor, opening a new account could seem like an easy way to improve your scores.
However, opening new credit accounts can also result in a hard inquiry and lower the average age of your credit accounts—both of which can lower your scores. So, there’s always a tradeoff to consider.
The credit mix scoring factor is also one reason that you might see your scores drop when you pay off a loan. Of course, paying off debt is a good thing, but your account will be closed with a $0 balance. If that was your only installment account, you might not have a diverse credit mix anymore, which could hurt your score.
To be clear, don’t delay paying off a loan to maintain your credit mix. And you should always aim to pay off your credit card balances in full to avoid paying interest. The timing of when credit card issuers report your balance to the credit bureaus (Equifax, Experian, and TransUnion) means your accounts will still be seen as active anyway.
Start improving your credit mix
Even if your credit mix isn’t a major scoring factor, you may want to make sure you have both types of credit accounts open if you’re trying to increase your scores. However, look for options that don’t charge lots of fees or interest.
For example, you could use a credit card that doesn’t have an annual fee for your small subscriptions. Then pay off the card’s balance in full each month to keep the account active without paying interest. Plus, the low utilization rate and on-time payments can also improve your credit scores.
If you have a credit card and don’t have an installment loan, lending circle or secured credit-builder loans could be good options. These are created to help borrowers build credit rather than finance purchases, so they tend to have minimal fees and interest.
We took credit mix into consideration when designing the Ava credit-building products. That’s why you can get both the Ava Card (a revolving account) and the Savings Builder Account (an installment account). We also did away with interest and fees in favor of a low monthly or annual subscription. Plus, there’s no hard inquiry to apply and no minimum credit score to qualify.