Credit Mix is really exactly what it sounds like. It is simply the different types of credit that you have. It makes up the smallest portion of your credit score (10%). Here’s how it works:
(1) Credit Mix is Not That Important
There are several different types of credit accounts that someone can take out:
- Credit cards
- Student loans
- Vehicle loans
- Recreational loans
- Mortgages
- Unsecured loans
- Other secured loans
Generally, the three credit reporting bureaus (Equifax, Experian, and TransUnion) will give you a higher score if you have different kinds of accounts opened. Also, creditors want to see that you are able to manage different types of credit. They want to see that you can manage revolving credit lines like credit cards as well as loan payoffs like student loans and vehicle loans.
The more types of accounts that you have opened, the better the credit mix you will have.
This doesn’t mean that you should try to open one or two credit lines of each type of credit though. You should only open the credit lines that you need. Don’t go get a car loan or a student loan unnecessarily simply to bump up your credit score.
It is important to remember that the effect that your different accounts will have on your credit score is minimal. Credit mix only makes up 10% of your overall credit score.
If you want to maximize your credit score just remember that credit mix is not nearly as important as paying off your collection accounts, paying your bills on time, or maintaining a low credit utilization rate.
So if you can do those things, you should then focus on your it.
To have a healthy credit mix you should have 6+ different types of accounts opened.
If you have 20 different student loans and nothing else, that is not optimal. (But remember, that isn’t a huge deal.)
Final Thoughts
Seriously, don’t worry too much about all of this. If you pay your bills on time, keep out of collections, and maintain a low credit card utilization rate you will have a great credit score.
Maintaining a good credit mix unnecessarily for the sake of an uber-high score is silly.
All other things being equal, if there are two people who have a solid payment history, no collection accounts, and a 0% credit card utilization rate and one of them has several different types of accounts (a good credit mix) and the other who does not (a bad credit mix) their scores will still both be good.
In this example, the person with the good credit mix might have somewhere around an 820 while the other person will have somewhere around a 760. Both of those credit scores are great and will get the lowest interest rates possible when borrowing money!
I hope this clears up some bad information that is out there!
Don’t let a banker strong-arm you into getting a loan that you really don’t need simply to help your credit mix.
Until next time!
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