UNDERSTANDING CREDIT MIX IMPORTANCE

When you or a prospective lender pulls your credit report, there’s a list of all the credit accounts that exist (or have existed) in your name.

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. What this shows lenders is that you have a mix of credit, including both revolving and installment credit. Having a blend of the two (and, of course, making timely payments on them) is ideal for maintaining the best possible credit score.

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.

While credit mix is a factor, it's not the sole determinant of credit scores. Other factors, such as payment history and credit utilization, also play significant roles.

Instead, take the time to understand what credit mix means and how it influences your score. Here are the kinds of revolving and installment credit accounts that do and do not factor into your credit mix, according to Experian.

What is included in your credit mix:

• Installments, Revolving, and Open Accounts

What isn’t included in your credit mix:

• Payday loans
• Title loans