Why Mixing Up Credit Types Can Improve Your Credit Score
What Is Credit Mix?
Credit mix refers to the different types of credit accounts you have, such as:
Revolving Credit – Credit cards, retail store cards, and lines of credit (balances can fluctuate).
Installment Loans – Mortgages, auto loans, personal loans, and student loans (fixed payments over a set period).
Having a mix of both revolving and installment credit shows lenders that you can manage multiple forms of debt responsibly.
How Credit Mix Affects Your Credit Score
1. Demonstrates Responsible Credit Management
Lenders prefer borrowers who can handle different types of credit. For example, someone who successfully manages both a credit card and a car loan is seen as a lower risk compared to someone who has only used credit cards.
2. Boosts Your Credit Profile
A diverse credit mix can help improve your credit score, especially if you have a limited credit history. If you only have one type of credit, adding another responsibly can strengthen your profile.
3. Helps Build a Stronger Credit History
Long-term installment loans (like mortgages or auto loans) contribute to your credit history length, which accounts for 15% of your credit score. Keeping them in good standing can have a long-term positive effect.
4. Shows Stability to Future Lenders
If you plan to apply for a mortgage, car loan, or another form of credit in the future, a well-balanced credit mix can make you more appealing to lenders, potentially helping you qualify for lower interest rates and better terms.
How to Improve Your Credit Mix
✔ Diversify Over Time – Don’t open new accounts just to improve your mix, but consider different types of credit as they naturally fit your needs.
✔ Keep Old Accounts Open – A mix of old and new credit accounts helps maintain a longer credit history.
✔ Pay On Time – Regardless of your mix, payment history makes up 35% of your score, so always pay on time.
✔ Avoid Unnecessary Debt – Only take on new credit if it aligns with your financial goals.