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How Can Credit Mix Positively Impact Your Credit Score? 

How Can Credit Mix Positively Impact Your Credit Score? 

July 9, 2022
5 min read
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How Can Credit Mix Positively Impact Your Credit Score? 
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Mixing up is crucial, especially when it comes to credit. It is surely a lesser-known concept but understanding it can take you a long way in improving your credit score. So, what exactly is a credit mix?  

A credit mix is nothing but the type of credit accounts you have such as credit cards, loans, and mortgages. It is one of the many factors that can affect your credit score. Generally, lenders are in favor of borrowers who have a diverse credit mix- which indicates that you are a responsible borrower and can handle all kinds of credit efficiently.  

How can credit mix boost your credit score?  

As already mentioned, the credit mix showcased in your credit reports plays an important role in boosting your credit score. How? It tells lenders how efficiently you can manage different types of credit accounts.  

Credit mix stands for only 10% of your FICO score. While a good credit mix can give a slight boost to your credit score, the absence of credit mix may not have a noteworthy impact on your score. That said, acquiring a new loan won't really help your credit score skyrocket, but opening too multiple credit accounts simultaneously can surely bring down your credit score due to the increased number of hard pulls into your credit history.  

Moreover, having too much debt can negatively impact your credit score.  And, above all, taking a new loan isn’t free, and the amount you pay for borrowing money isn’t worth the little increase in your credit score.  

So, the bottom line is- aim for a solid credit mix to boost your credit score, however don’t apply for loans randomly just because you’re worried about not having a credit mix.  

What are the different types of credit?  

Basically, there are two types of credit namely- installment and revolving credit.  

Installment credit: Now, this one has a fixed end date with a series of payments due every consecutive month. Mortgages, Student loans, personal loans, etc. are installment loans.  

Revolving credit: Revolving credit doesn't have a particular end date or set balance. Instead of spacing out the balance equally over a certain period of time, a minimum payment is due each month. Individuals can either pay the full amount or the minimum due. One of the most common types of revolving credit is a credit card.  

What isn’t included in your credit mix? 

Well, there are two types of loans that aren’t a part of your credit mix. They are:  

  • Payday Loans 
  • Title Loans 

Creditors who offer payday or title loans don’t report it to the credit bureaus and hence it won’t have a noticeable effect on your credit score and report. So, even if you have been consistent in repaying your payday loans, it won’t make a difference. However, if you default on a payday or title loan, it will be sold to collection agency who might report it to the credit bureaus.  

Simply put, payday or title loans can make your credit score, but can surely break it.  

How can you boost your credit mix? 

If you have no credit accounts, the minimum you can do to boost your credit mix is acquiring a credit card and paying your bills on time. But, if you have credit accounts but there’s a lack of credit mix, take out some time to figure out what type of accounts you have currently. Once you have a clear picture of it, consider applying for different accounts in order to diversify your credit mix and further improve your credit score and report.  

Can a lack of credit mix impact your credit score? 

With only one type of credit in your profile, you won’t witness a significant impact on your credit score. You might still be able to build a good credit score, even though it might be a daunting task.  

Remember, in order to build a solid credit history, you must take each and every credit improvement factor seriously, even if it accounts for only 10% of your entire credit score.  

Summing it up 

Mixing up your credit isn’t just enough. Ensure to make timely payments across all your credit accounts, alike. Having a mix of credit accounts shows the lenders that you are capable of handling all your credit accounts efficiently.