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. You may be able to make extra payments to pay the debt off quicker, but a significant monthly payment will always be needed. You also cannot typically borrow more without applying for a separate loan (unlike revolving credit, where you can continually borrow more as you repay). On a credit card, a minimum monthly payment will always be required, but it’s generally a very low amount — often only 1 to 2% of your current balance. You can always pay more (which will help you save money on interest), but you aren’t required to pay any more than the minimum payment.
- Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.
- Loans like a mortgage or auto loan are also considered a form of credit.
- They are secured by the value of your vehicle, which means the bank can take ownership of your car if you default on the loan.
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- For example, the Capital One Platinum Secured Credit Card has no annual fee and varying minimum security deposits starting at $49, $99 or $200 — based on your creditworthiness.
- Your balance determines your minimum payment due each month and there is no set end date to your agreement.
Ben Luthi has worked in financial planning, banking and auto finance, and writes about all aspects of money. His work has appeared in Time, Success, USA Today, Credit Karma, NerdWallet, Wirecutter and more. Use Experian Boost® to get credit for the bills you already pay like utilities, mobile phone, video streaming services and now rent. Advertisers in our database are highlighted, and advertisements include an option to apply using links on our site. CardRatings.com may be compensated by companies mentioned on the site when a user’s application is accepted or approved by such companies. Credit is defined as an agreement between a lender and a borrower to give them a set amount of capital to use on expenses.
By doing this, your score can reflect a great credit portfolio — pushing you towards an excellent credit score. A credit card account, on the other hand, is a revolving account, a line of credit you have access to without a fixed monthly payment. Your balance determines your minimum payment and there is no set end date to your agreement. And if you’re a borrower with a healthy credit profile, there’s a good chance that list contains a variety of credit types, such as credit cards, a mortgage and/or student loans. Broadly speaking, it measures how well-diversified your credit profile is. Demonstrating that you can responsibly manage different types of credit can indicate that you’re a reliable borrower.
For those who are new to credit cards, consider opening one to have some form of revolving credit and use it wisely — only charge what you know you can pay off in full by the due date. If you have at least one credit card and a car payment and/or student loan in your name, you may be surprised to learn that you already have a good credit mix. There’s no specific formula that determines what constitutes a good mix of credit. Instead, lenders want to see a balance between installment debt and revolving debt. These are generally very large loans in the hundreds of thousands of dollars, with monthly payments in the thousands of dollars.
- Credit cards allow you to make purchases at stores and online using borrowed money.
- Offer pros and cons are determined by our editorial team, based on independent research.
- Having a blend of the two (and, of course, making timely payments on them) is ideal for maintaining the best possible credit score.
- I don’t believe you need a fistful of credit cards, a mortgage and a car loan to enjoy the benefits of a good credit score.
Why Did My Credit Score Drop and How Can I Fix It?
This content is not provided by any company mentioned in this article. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any such company. CardRatings.com does not review every company or every offer available on the market. A dedicated team of CreditCards.com editors oversees the automated content production process — from ideation to publication. These editors thoroughly edit and fact-check the content, ensuring that the information is accurate, authoritative and helpful to our audience. Along with the initial FICO score drop that can happen when the lender checks your credit — what’s known as a hard inquiry — there is the danger that you won’t be able to handle that credit responsibly.
What is a Credit Mix and How Can it Affect Credit Scores?
That means paying loans and credit cards on time, keeping balances on credit cards low relative to your credit limits and keeping the number of new accounts you open to a minimum. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products.
Having a mix of credit counts for 10% of your credit score—here’s what that means
(For credit cards, keeping your credit utilization low is also important.) Don’t feel compelled to take on more credit if you don’t actually need the money. If opening a new account improves your credit mix, your credit score can benefit. For example, if you only have credit cards and you take out a personal loan, which is an installment loan, you can improve your credit mix. However, opening too many new accounts within a short period of time can reflect badly on your credit score.
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Often, focusing on the bigger factors of your credit score can give you a bigger boost, without taking on more debt. For instance, paying down existing debt can help boost your “amounts owed” credit score factor, which is 30% of your score (compared to 10% for credit mix). As you can see, credit mix has the smallest overall effect on your score out of any of the factors. Your record of on-time payments and the amounts you owe have a much larger impact on your score. Aim for having multiple credit accounts that represent both revolving and installment credit.
In fact, your credit mix makes up 10% of your FICO credit score, which is used in over 90% of lending decisions. If you were to pay off an installment loan, such as an auto loan, this could result in a temporary dip in your credit score because it lessens your credit mix. It’s not worth worrying too much about this, however, since credit scores fluctuate periodically and you don’t want to remain in debt to save a few points.
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Other factors, such as our own proprietary website rules and whether a what is credit mix product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service. If you have a long history of responsibly using only one type of credit product — whether it’s a credit card, student loan or an auto loan — you likely have a good credit score already.
Don’t have an account?
While credit mix only accounts for a modest portion of your credit score, it’s important to understand. Here’s how a good mix of credit cards and loans in your credit report can help your score. Installment credit can be a little trickier to obtain, usually carrying stricter underwriting requirements. However, you don’t have to take out a mortgage to get some installment credit on to your credit reports. Passbook loans function much like secured credit cards, being backed by your funds.
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If you take out a loan or open up a credit card that you can’t afford to pay off, that will hurt your score more than not having a good credit mix. If you have only a student loan or an auto loan, consider a starter credit card that you are likely to qualify for — or begin with a secured credit card, which is easier to get. You can monitor your credit health and credit mix using CreditWise from Capital One.
Your use of this website is not an offer or solicitation to lend you money. Match Financial, the owner of this website is not a lender and does not make loans or credit decisions. Match Financial may sell all or part of your information to lenders and other persons and you may be contacted by lenders and other persons. Match Financial cannot guarantee any loan, credit approval, or amount, and everything on this site should be considered a commercial advertisement. Consumer information is submitted to multiple lenders in order to provide consumers the best chance for approval. There is no fee to use these services, and Match Financial is not an agent or representative of any lender or service provider and does not endorse any loan, service or product.
This compensation may impact how and where products appear on this site including, for example, the order in which they appear. It is this compensation that enables CardRatings.com to provide you services like access to free tools and information for consumers. CardRatings.com does not review or include all credit card companies or all available credit card offers. Because credit card offers change frequently, please visit the card issuer site for current information. On my credit profile, it shows a total of 76 total accounts — which accounts for a wide mix of credit. I have many credit cards (many of which are closed), a mortgage, student loans (which are now paid off) and auto loans (that are paid off).
The Capital One Platinum Credit Card is a credit-builder card that offers a path to upgrading to a more rewarding credit card in as little as six months. We believe everyone should be able to make financial decisions with confidence. Credit mix is one of the five factors that help determine your FICO® Score☉ and Experian credit report, making up 10% of your score. They’re a tool that lenders use to gauge how responsible you are when it comes to managing money.
For a healthy credit mix, it’s best to have both types of loan in your portfolio. However, it’s normal for those building their credit to be stuck with installment credit first — and that’s ok. The most important part of building your credit score is to pay your bills on time each month. But as time goes on, do your best to have a mix of credit in your portfolio.