Jean Chatzky
Ever wonder what goes into the secret sauce that becomes your credit score? Some of the ingredients, of course, are easier to nail down than others. That’s because certain parts of a credit score, unfortunately, can have odd names or sound like they may have a double meaning. For example, the portion of your score known as your ‘credit account mix’ could be open for interpretation.
You’re correct if you guessed it’s a blend of different types of credit. But it’s far better not to guess when it comes to money matters. Why? Having a solid understanding of everything that goes into your credit score – the three-digit number that serves as a report card of sorts for how we handle money – can help you save a bundle. With a range from 300 to 850, the higher your score, the better your chances of getting favorable rates when you borrow money. And lower rates mean you could potentially save thousands on the life of a loan for something such as a home or car.
To clear up any confusion, let’s discuss what the two largest U.S. credit scoring agencies – VantageScore and FICO – mean when they refer to someone’s credit mix.
What is Credit Account Mix?
When you hear a lender at your local credit union or bank talk about credit mix, they are typically referring to the different kinds of credit lines. For example, having more than one account type – such as a credit card, car loan, or mortgage – that you successfully pay over time shows you’re able to maintain a variety of debts.
Why Credit Mix Matters
Lenders want to see that you can handle installment loans such as a mortgage or a car loan and revolving credit (credit cards) at the same time. This typically gives them more confidence in your creditworthiness. In other words, there’s a better chance you would pay back the money you are (potentially) asking to borrow.
VantageScore Credit Account Mix
VantageScore adds a little more to its description in this category. Known as “credit mix and experience” the scoring model describes it as a “highly influential” part of your credit score. VantageScore looks for a varied credit mix, such as the vehicle loan, credit card, and home loan discussed previously. Having those types of credit products in your “account mix” communicates your experience in handling different types of credit. For VantageScore*, credit account mix makes up 11% of your score.
FICO Credit Account Mix
With FICO, the credit mix makes up 10% of a score. But don’t let that small number fool you. The credit reporting agency not only looks at the mix of credit you have but also at the payment history for each loan. That means if you have a solid mix of revolving and installment loans, but your payment history is iffy, your FICO score is going to reflect the not-so-great payment history. And that can be a big deal because payment history accounts for 35% of a FICO credit score.
How to Build (and Improve) Credit Account Mix
If you don’t have a mix of different forms of credit just yet, don’t panic. You also shouldn’t run out and apply for several credit cards or a car loan just to enhance your credit mix. Doing so can hurt your credit score. But adding different types of credit as you need them will improve your credit mix which will lift your credit. Remember, every time you apply for a new loan or line of credit, a lender makes a hard inquiry on your report which can drop your score by a few points.
With reporting by Casandra Andrews
*based on VantageScore 3.0
Chris O'Shea
