Credit mix is a term used to describe the different types of credit accounts you have and is one of the five factors that help determine your credit 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.
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 gives you a lump-sum disbursement of funds, which you’ll typically repay in equal installments over a set period. Common types of installment credit include:
- Mortgage loans
- Personal loans
- Auto loans
- Student loans
How to improve your credit mix
Your credit mix may not 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.
- Become an authorized user. If you’re just starting to build your credit from scratch, 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 impact your credit score and make it difficult to get approved for credit when you need it.
For more information on improving credit, see the following articles: