History of Credit Scores
Mix of Credit: Brief Synopsis
- Mix of Credit makes up 10% of your FICO score
- Each consumer is matched against an ‘ideal profile’
- Establishing 3-5 credit cards would increase your mix of credit
Mix of Credit: Full Explanation
One of the important five factors which determine a FICO score is your mix of credit. If you refer to the FICO chart, you can see that this factor makes up 10% of your total score. However, the mix of credit is one of the most overlooked areas of a credit profile. Luckily, it is also one of the areas which is easiest to manipulate. The basis of this factor is how well you conform to the ‘ideal’ credit profile that FICO is looking for. This ‘ideal’ consumer would have a broad range of different types of credit.
Specifically, this ‘ideal’ consumer would have each major type of credit on their profile: mortgages, loans, and credit cards. Roughly, this person would have one or two mortgages, one or two installment loans (student loans, car loans, personal loans, etc.), and 3-5 credit cards. The reason being that it’s better having a potential borrower who has experience with all three types of credit: mortgages, installment loans (loans with regular repayment plans), and credit cards; rather than a borrower who has experience with just one or two.
Though it would be difficult to establish a mortgage and install loans, there are simple steps you can take to improve your mix of credit. Primarily, you should focus on fine-tuning your credit card profile to better match the ‘ideal mix’. Most people with “challenged” credit don’t have 3-5 credit cards and thus do not have the ideal “mix of credit”. By obtaining some secured credit cards or merchandise cards, you can hit that ideal range of 3-5 credit cards and start maximizing your score.