When creditors asses your credit file, the better you are at managing different loans and lines of credit, the lower the risk you represent when applying for more credit.
One of the five key factors in your credit score is your Credit Mix. This factor, which counts for 10% of your FICO credit score, considers how much experience you have with different types of credit accounts. Your credit score reflects how well you manage different types of credit.
There are several different types of credit:
Those accounts that provide you with credit that allows more flexibility regarding the amount available and amount paid monthly (subject to any minimum payments required, and payment due dates, etc.).
- Bank credit cards, airlines and theme park credit cards, retail stores and gas station credit cards, and even Home Equity Lines of Credit.
Or Installment credit, is a loan for a specific sum of money you agree to repay, plus interest and fees, in a series of equal monthly payments (installments) over a set period of time.Examples:
- Auto loans, personal loans, furniture financing and/or leasing, and student loans.
Also, in this category
- Real estate loans, such as mortgages and/or home equity loans.
So, what does it mean to you and your FICO Score? FICO not only looks at the mix of credit you have but also at the payment history of these credit types. For instance, if you have a great mix of installment and revolving loans, yet your payment history is bad, your FICO Score will reflect that negative payment history, which represents 35% of your FICO Score.
Having experience with different types of credit shows that you can handle various types of credit obligations. Being able to manage a mortgage is a much different type of responsibility than managing a credit card or even an auto loan. FICO even considers people how have no experience with credit cards as riskier borrowers. If you only have installment loans on your credit report, adding a credit card can help boost your credit score.
Okay, so a good credit mix can help your credit score, does that mean you should start applying for all the types of credit lines you do not currently have? No. First and foremost, two things happen when you apply for multiple new credit lines within a short period of time:
- Creditors check your credit (a “hard inquiry”) which typically lowers your credit score and remains on your credit report for two years.
- If a creditor sees you have opened an excessive amount of new accounts within a small-time frame, it could indicate to them that you are experiencing financial distress, whether true or not. The result? A likely denial of the loan.
Adding debt too quickly can lead to bigger debt troubles. Taking on too many accounts at one time can make it hard to keep up with all your payments. You may end up overextended and damage your credit by missing payments.
Again, since credit mix is only 10% of your FICO Score, it most likely will not determine whether or not you obtain credit from lenders. However, if you are striving to bring your FICO Score to the highest level it can be, your credit mix can play a part.
At Credit Services of America, we strive for the best results possible. Whether you are in need of Credit Repair, Student Loan Consolidation, Debt Settlement, or even well-established Trade Lines, we are here to help accomplish your goals. We personalize a game plan designed just for you in our Free Credit Consultation, (saving you $200 right off the bat), and start working for you before you even leave our offices. Whether you need help with your existing revolving credit, and/or installment credit, or even if you need credit all together, we are here help.
A Goal without a Plan is just a Wish. Give us a call TODAY at 844-FIX-URCR or click on the following link creditservicesofamerica.com to schedule your FREE consultation and create your personalize plan to achieve your credit and debt GOALS!
*Individual results may vary. Please call for more details and to discuss your own individual situation.