Credit mix.
In plain English
Credit mix describes the different kinds of credit you carry. Lenders group credit into two broad types: revolving credit, like credit cards where the balance goes up and down, and installment loans, like a car loan or student loan with fixed monthly payments. Scoring models give a small bonus to people who handle both kinds responsibly. It is a minor factor, well behind payment history and amounts owed, so you should never take on a loan you do not need just to improve your mix.
01Why it matters
Credit mix is a small piece of the puzzle, so understanding it keeps you from doing something costly, like opening an unnecessary loan, in pursuit of a tiny score bump.
02The math, step by step
Say you have two credit cards and a solid payment record but no installment loan. Your credit mix is fine; it is just not as broad as someone who also has a car loan. Going out and financing a car you do not need, just to add an installment loan, would cost you interest far larger than any small mix benefit. The mix follows naturally as your life requires those loans.
03What this is NOT
Credit mix is one of the smallest scoring factors. Borrowing money solely to diversify your mix usually costs more in interest than it is worth. Let the mix grow naturally as you actually need loans.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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