What Is Credit Mix?

What Is Credit Mix?

Credit mix is one of the five factors that help determine your FICO^® Score^☉ and Experian credit report, making up 10% of your score.

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. As you naturally open different credit accounts over time, a good credit mix can help you take your credit score into excellent territory.

That said, it's unwise to open new accounts for the express purpose of improving this scoring factor. Credit mix has a relatively low score impact compared with other factors, and lenders are unlikely to focus on your credit mix when deciding whether to approve or deny a loan application. The potential impact of a new account, including a hard inquiry or even missed payments, shouldn't be ignored.

What Are the Different Types of Credit?

There are two main types of credit available to you: revolving credit and installment credit. Having a good mix of both types of credit can help you increase your credit score over time.

Revolving Credit

With a revolving credit account, you'll be assigned a credit limit, which is the maximum amount you can borrow. You can then borrow, pay off and re-borrow funds up to your limit. The most common types of revolving credit include:

• Credit cards
• Retail credit cards
• Home equity lines of credit
• Personal lines of credit

Installment Credit

Installment credit provides you with a lump-sum disbursement of funds, which you'll typically repay in equal installments over a set period of time. Common types of installment credit include:

• Mortgage loans
• Personal loans
• Auto loans
• Student loans

What Isn't Part of Credit Mix?

Although most forms of credit are included in your credit mix, there are some that aren't considered, mainly because they don't appear on your credit report or are not part of credit score calculations:

• Payday loans
• Auto title loans
• Buy now, pay later loans

It's important to keep in mind, though, that if you default on any of these loans, the lender may send the debt to a collection agency, and it'll be reported as a collection account.

A debt in collections won't necessarily impact your credit mix, but it is a negative mark on your payment history, which is the most influential factor in your credit score.

What Is a Good Credit Mix?

There's no such thing as an ideal credit mix for an excellent credit score, but at a minimum, you'll want to have at least one type of revolving credit and one type of installment credit.

Credit mix is a factor that tends to naturally evolve as you make financial moves throughout your life. If you're a recent college graduate paying off a student loan, for instance, the act of opening your first credit card can improve your credit mix.

How to Improve Your Credit Mix

As previously mentioned, your credit mix is unlikely to be a deciding factor in whether you get approved for a loan or credit card. As a result, it's generally not necessary or recommended to open new credit accounts just for the sake of improving your credit mix.

If you want to take your credit score to the highest level, however, diversifying your credit mix can make a difference. With that in mind, here are some ways to improve your credit mix:

• Apply for credit only when you need it. Diversifying your credit mix is best considered a long game—it'll naturally improve as you add new credit accounts, also known as tradelines, to your credit file. As you consider a new credit card to earn better rewards on your spending, an auto loan to buy a car or a mortgage to buy a house, your credit mix will naturally improve over time.
• Become an authorized user. If you're just starting to build your credit from scratch, it can be challenging to get approved for a credit card on your own. Until you're ready to apply, ask a financially responsible loved one to add you as an authorized user on their credit card account. The account will show up on your credit reports and help boost your credit mix and other areas of your credit score.
• Avoid frequent credit applications. Applying for and opening multiple credit accounts in a short period of time can damage your credit score and make it difficult to get approved for credit when you need it.

Monitor Your Credit Score to Track Your Progress

Whether you're working to build your credit score or maintain a good credit score, it's important to monitor your credit regularly. With Experian, you can check your FICO^® Score and Experian credit report for free anytime.

What's more, you can get real-time alerts when changes are made to your Experian credit report, making it easier to address potential issues quickly and also spot inaccuracies and potential identity theft before they wreak havoc on your credit score.