Jean Chatzky
Ever wonder exactly 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.
If you guessed it’s a blend of different types of credit, you’re correct. But it’s far better not to guess when it comes to money matters. Why? Because 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, and 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
VantageScores 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 notes that it 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.
FICO Credit Account Mix
With FICO, credit mix makes up 10% of a score, notes myFICO.com. 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. Remember, every time you apply for a new loan or line of credit notes VantageScore, a lender makes a hard inquiry on your report which can drop your score by a few points. The best way to build and improve your credit score is to pay all of your bills on time, every time.
With reporting by Casandra Andrews
Chris O'Shea
