Know Your Credit Score: Credit Mix
Your credit score is important. It can increase your buying power, your financial security and keep you and your family safe from predatory payday loans and title loans.
That’s why we’re doing this Know Your Credit Score series, where we break down the five categories of information that make up your score. You can check out our previous posts on amounts owed and payment history. Today we’re going to talk about your “Credit Mix.”
Just what the heck is a credit mix anyway?
Your credit mix is essentially how many different kinds of credit you have. We’ll let certified financial educator Maggie Germano (@MaggieGermano) explain:
“Lenders like to see several (and varying) accounts on your report because it shows that other lenders have trusted you with credit. However, this is the least important factor for your credit score, so don’t rush to open a bunch of new credit accounts.”
So what’s your credit mix really worth?
As Germano mentioned, your credit mix is the least important part of your credit score. You might think you can just ignore it because of its lesser significance. But you’d be wrong!
“Credit mix makes up 10 percent of your FICO score,” says nationally recognized Credit Coach Jeanne Kelly (@CreditScoop). “That may not seem like a big part of your score, but every point does matter.”
So now that we know what your credit mix is and how much of your score it’s worth, how can you start building it up?
Here’s how you can improve your credit mix.
This advice from our experts will help you get 100 percent out of the 10 percent that is your credit mix. (Don’t think too hard about the math on that one.)
“If you only have student loans, getting a credit card would help mix up your accounts,” Germano advised. “However, if you struggle with overusing your credit cards, it’s not in your best interest to get one just to add a different type of credit account. Unless you absolutely need something like a personal loan, mortgage, or car loan, I would not recommend opening new credit accounts just to mix up your types of accounts.”
“You do not need to go out and get a home mortgage or auto loan if you do not need it to add to your mix,” Kelly reiterated. “You can always get a small personal loan if you need to purchase an item instead of another credit card.”
Alayna Pehrson, digital marketing strategist for @BestCompanyUSA, offered her own strategy for fixing the mix:
“To improve your credit mix, you can start by effectively managing numerous credit card accounts as well as installment loans. Although opening new credit card accounts may lower your score at first, successfully having and using multiple credit cards will benefit you as time goes on.
“Installment loans cover anything from mortgages to student/personal loans and auto loans as well. Having these loans will demonstrate your ability to efficiently diversify your credit usage/habits.
“Even though keeping your credit mix at a good level will benefit your score, it’s good to keep in mind that your credit mix makes up only 10 percent of your overall credit score, so it’s something that shouldn’t be overly stressed about.”
As Pehrson said, you should worry the least about your credit mix, as it’s much less important to your credit score than making all of your payments on time and paying down your debt.
But when it comes to getting a loan, especially a longer-term loan, you’ll want to have the lowest interest rates possible. And that means the best credit score possible.
Your credit mix might not be as important as your payment history or your amounts owed, it’s certainly worth keeping an eye on.
By the time we’re done with this series, you’ll be ready to make your credit score the best it’s ever been! Check back next week when we cover recent credit inquiries!
In the meantime, stay informed by checking out these recent credit-related posts:
- How fixing your credit can fix your future.
- Dose your spouse have bad credit? Here’s how it can affect you.
- How bad credit can affect your kids’ future.
|Maggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit maggiegermano.com.|
|Jeanne Kelly (@CreditScoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out JeaneKelly.net to get the credit help you need!|
|Alayna Pehrson (LinkedIn) is a Digital Marketing Strategist and Credit Repair Specialist at BestCompany.com, (@BestCompanyUSA).|