Your credit score is made up of five factors: payment history, credit utilization, length of credit history, new credit accounts, and credit mix.
Understanding these factors allows you to make smarter credit decisions so you can earn a high credit score. In addition to learning how to optimize these factors, you also need to learn why they matter to lenders.
All five factors play an important role in your credit score. But in today’s article, we’re going to focus on that final credit score factor: your credit mix. Read on to find answers to the following questions:
- What is your credit mix?
- What’s not included in your credit mix?
- How does your credit mix impact your credit score?
- How to check your credit mix?
- How to optimize your credit mix?
- Why does credit account diversity matter to lenders?
Table of Contents
What is Your Credit Mix?
Your credit mix measures how many different types of credit accounts you have listed on your credit reports. Lenders like to see that you have a healthy credit mix because it suggests that you can responsibly manage a diverse mix of accounts.
The different types of credit accounts are as follows:
#1 Revolving Credit Accounts
Credit cards, personal lines of credit, and home equity lines of credit (HELOCs) are a few examples of revolving credit accounts. These types of accounts allow you to borrow, repay, and borrow again up to a certain amount, which is known as your credit limit. Once you spend up to your credit limit, you must pay down some debt before you can borrow any more money.
You’ll be required to make a minimum payment on your revolving credit account’s balance each month. You can carry the rest of your balance over to the next month, make a slightly larger payment, or pay off your entire balance in full. If you don’t pay your entire balance in full each month, you’ll be charged interest on the amount you carry over.
Revolving credit accounts can typically be used indefinitely until you or your lender decide to close the account. As a result, they offer unparalleled financial flexibility during times of fluctuating cash flow or emergency expenses.
#2 Installment Credit Accounts
Installment credit accounts let you borrow a set amount of money all at once. Some popular examples of installment credit accounts include:
- Auto loans
- Student loans
- Personal loans
- Home equity loans
- Mortgage loans
Once you receive your loan, you must pay it back, along with its interest fees, in monthly installments. If your interest rate is fixed, your payments will be the same amount each month. For this reason, installment loans often offer more predictability than their revolving counterparts.
Once an installment loan is paid off in full, the account will be closed automatically. If you want to borrow more money using the same type of account, you’ll need to apply for another installment loan with your lender.
#3 Charge Cards
Before credit cards eclipsed them in popularity, charge cards were the primary method for making non-cash purchases. Charge cards resemble credit cards in many ways with a few notable exceptions:
- Charge cards don’t have set credit limits.
- Charge cards require you to pay off your entire balance in full every month.
- Since you never carry a balance, charge cards don’t charge interest fees.
- Charge cards won’t impact your credit utilization.
While charge cards don’t charge interest, you may need to pay an annual fee to cover your accounts’ maintenance. American Express charge cards, for example, have annual fees that can range from $150 to $695.
Charge cards are classified as an “open credit account,” which means they share features of both revolving and installment credit accounts. While they won’t impact your credit score’s credit utilization, they can influence the rest of your credit scoring factors, including your credit mix.
#4 Service Credit Accounts
Service credit includes your accounts with service providers, including:
- Utility companies
- Cell phone service providers
- Internet service providers
While not technically credit accounts, these accounts’ services are often rendered before you make your monthly payment. Failure to pay these types of bills on time can negatively impact your credit score if your service provider sells your debt to a collections agency.
Historically, service credit hasn’t influenced borrowers’ credit mix. However, new credit scoring models are starting to factor in “alternative credit data,” which can include these types of accounts. Two notable examples are FICO 10T and VantageScore 4.0. Lenders will be required to use these two credit scoring models for conforming mortgage loans by the end of 2025. Since they factor in alternative credit data, they may help fiscally responsible borrowers with thin credit histories enhance their payment history and credit mix, boosting their chances of mortgage approvals.
Learn more: What is Alternative Credit Data?
What Type of Credit Accounts Aren’t Included in Your Credit Mix?
Currently, there are two types of credit accounts that aren’t included in your credit mix: payday loans and title loans. These accounts are excluded because their providers don’t report your credit activity to the credit bureaus. As a result, these credit accounts won’t show up on your credit reports.
While payday loan and title loan providers rarely report to the credit bureaus directly, they may send your debt to collections if you default on your payments. In these situations, these loans will be listed on your credit reports. Unfortunately, they won’t benefit your credit mix – they’ll simply harm your payment history.
Are Buy Now, Pay Later Loans Included in Credit Mix?
Buy Now, Pay Later (BNPL) loans have quickly become a popular form of short-term, point-of-sale financing. These loans allow you to make purchases and pay for them in a few installments, often with no interest if you make your payments on time.
Like title loans and payday loans, these short-term loans aren’t traditionally included in credit reports unless they’re sent to collections. However, TransUnion, Equifax, and Experian have plans in the works to feature BNPL loans within their credit reports soon. So far, each credit bureau’s approach to BNPL loans is slightly different:
- TransUnion will feature BNPL loan data in a separate section of its credit reports and exclude it from credit score calculations for now.
- Experian will also store BNPL data separately and exclude it from credit score calculations for now.
- Equifax is allowing BNPL providers to decide whether their loans are classified as revolving or installment accounts and if they want to include BNPL loans in credit score calculations.
Since these plans are subject to change, so are BNPL loans’ impact on your credit mix.
How Credit Mix Impacts Your Credit Score
Different credit scoring models weigh credit mix differently. For example, FICO weighs this factor as 10% of your overall credit score. VantageScore doesn’t provide specific percentages, but it says credit mix is “highly influential.”
Credit scores can range from 300 to 850 points, enabling you to earn a total of 550 points. Since your credit mix only makes up 10% of your FICO credit score, it can only impact around 55 of those points. For reference, these are the weighted percentages of the other four FICO credit score factors:
- Payment history – 35% (or roughly 192 points)
- Credit utilization – 30% (or roughly 165 points)
- Length of credit history – 15% (or roughly 82 points)
- New credit accounts – 10% (or roughly 55 points)
Based on these numbers, you can still earn a very high credit score without diversifying your credit mix. You may even be able to get it up to 800, which is considered “exceptional.” Even so, understanding how to optimize your credit mix is useful, especially if you want to earn the highest credit score possible.
Why Does Credit Account Diversity Matter to Lenders?
Now that you understand the basics about your credit mix, you may be wondering why lenders care about it. The reason is that managing different types of credit accounts requires different skills. Just because you can make all of your credit card payments on time doesn’t mean you know how to properly manage an installment credit account and vice versa.
In this sense, it’s similar to knowing how to play soccer, but not having any experience playing tennis. A tennis coach won’t have much confidence in your tennis skills just because you’ve played soccer before. If you want to show them that you’re skilled at both sports, you need direct experience to prove it.
Lenders value a diverse credit mix for the same reason. A diverse credit mix shows lenders that you’re a well-rounded credit user. In turn, you’re more likely to manage all types of credit accounts properly and responsibly.
How to Optimize Your Credit Mix
If you’re eager to optimize your credit mix, you simply need to get experience using revolving and installment credit accounts. This could look like opening up a couple of credit cards and using an auto loan and mortgage loan when you’re ready to purchase a car and a house.
As of 2024, over 80% of Americans already use credit cards. Thus, it’s often the installment side of the credit mix equation that often needs the most work. FICO and VantageScore have also found that borrowers struggle more to fit fixed installment payments into their budgets compared to their variable revolving credit payments. As such, installment credit accounts may hold slightly more weight when it comes to your credit mix calculation.
While you want to use a mix of different credit accounts, you shouldn’t open new accounts for the sole purpose of diversifying your credit mix. Instead, simply employ the following tactics:
- Avoid closing old credit card accounts – While installment loans are closed as soon as you pay them off, credit card accounts can stay open for as long as you want. You just need to keep your credit card account in good standing. Keeping your old credit card accounts open can help you preserve your credit mix. It can also help you maintain a longer length of credit history and lower credit utilization, both of which can improve your credit score.
- Open new types of credit accounts as needed – While you shouldn’t open new credit accounts just to improve your credit mix, don’t be afraid to take advantage of affordable financing when you truly need it. For example, you may want to consider applying for a personal loan or home equity loan if you have to pay for some unexpected expenses, rather than using your credit card. Or, if you’re ready to buy a new car or house, you can explore your auto loan and mortgage loan options. Using new types of credit accounts when it’s appropriate is the best way to diversify your credit mix.
How to Check Your Credit Mix
If you want to review your current credit mix, you can request a copy of your credit reports from Experian, Equifax, and TransUnion for free once every 12 months on AnnualCreditReport.com.
Don’t Lose Sight of Other Credit Score Factors
While optimizing your credit mix is a worthwhile endeavor, it’s important to keep your credit mix in perspective. Some actions may reduce your credit mix but benefit your payment history or credit utilization.
For example, paying off your mortgage can reduce your credit mix by eliminating its installment loan from your open credit accounts. However, it’s still the most responsible thing you can do for your payment history. Likewise, closing a credit card with costly annual fees may reduce your credit mix, but it may still be the right financial decision in the long run.
As you can see, your credit mix is only one credit scoring factor to consider. Since it has less of an impact on your credit score than your payment history, credit utilization, or length of credit history, you shouldn’t stress about it too much.
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