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Advice

Having a mix of credit counts for 10% of your credit score—here's what that means

CNBC Select defines what it means to have a mix of credit and why lenders like to see this.

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When you or a prospective lender pulls your credit report, there's a list of all the credit accounts that exist (or have existed) in your name.

And if you're a borrower with a healthy credit profile, there's a good chance that list contains a variety of credit types, such as credit cards, a mortgage and/or student loans.

What this shows lenders is that you have a mix of credit, including both revolving and installment credit. Having a blend of the two (and, of course, making timely payments on them) is ideal for maintaining the best possible credit score.

In fact, your credit mix makes up 10% of your FICO credit score, which is used in over 90% of lending decisions. If you were to pay off an installment loan, such as an auto loan, this could result in a temporary dip in your credit score because it lessens your credit mix. It's not worth worrying too much about this, however, since credit scores fluctuate periodically and you don't want to remain in debt to save a few points.

Instead, take the time to understand what credit mix means and how it influences your score. Here are the kinds of revolving and installment credit accounts that do and do not factor into your credit mix, according to Experian.

What is included in your credit mix:

  • Credit cards (revolving)
  • Home equity line of credit (revolving)
  • Student loans (installment)
  • Auto loans (installment)
  • Mortgages (installment)
  • Personal loans (installment)

What isn't included in your credit mix: 

  • Payday loans
  • Title loans

Why lenders like to see a variety of credit

When lenders are making a decision on what loans or interest rates to offer you, it helps them to see a steady payment record on a mix of credit types because it shows that you can manage the different obligations that come with borrowing all kinds of debt.

Revolving credit (such as credit cards) illustrates to lenders that you are able to borrow varying amounts of money each month and consistently pay it back. Meanwhile, installment credit (such as loans) demonstrates your ability to uphold a long-term agreement and make fixed, on-time payments until you repay what you borrowed.

Having a diverse variety of credit products certainly helps in achieving the best credit score. For example, Jim Droske, president of credit counseling company Illinois Credit Services, has a perfect credit score and a healthy mix of credit to show for: six credit cards and three installment loans (two car loans and one mortgage).

According to Experian, demonstrating your ability to manage different types of debt may come easier than you think. To use revolving credit, open a credit card and only charge what you know you can pay off in full by the due date. This way, you avoid having to pay interest on a revolving balance. For installment credit, you may be surprised to find out that your car payment, mortgage or student loans already count as this type of credit account. Just make sure that you are making payments on time each month.

How to know your credit mix

To see how your credit mix stacks up, pull your credit report for free from the each of the three main credit bureaus through AnnualCreditReport.com. This is a good first step in monitoring your credit as it presents you with a clear snapshot of your financial picture. Credit reports list your personal information, account details, inquiries and public record data. When reviewing your credit report, there should be a section that indicates your different credit accounts.

Learn more: Here’s what to look for when you review your credit report

You may want to also consider signing up for a credit monitoring service that helps you track your score and activity. Our top-ranked ones include CreditWise® from Capital One as the best overall free service and IdentityForce® as the best overall paid service.

CreditWise® from Capital One

CreditWise® from Capital One
Information about CreditWise has been collected independently by CNBC and has not been reviewed or provided by the company prior to publication.
  • Cost

    Free

  • Credit bureaus monitored

    TransUnion and Experian

  • Credit scoring model used

    VantageScore

  • Dark web scan

    Yes

  • Identity insurance

    No

See our methodology, terms apply.

IdentityForce® UltraSecure and UltraSecure+Credit

IdentityForce® UltraSecure and UltraSecure+Credit
On Identity Force's secure site
  • Cost

    2 months free on all annual plans UltraSecure: $8.99/mo, $89.90/yr UltraSecure+Credit: $19.99/mo, $199.90/yr

  • Credit bureaus monitored

    Experian, Equifax and TransUnion

  • Credit scoring model used

    VantageScore

  • Dark web scan

    Yes

  • Identity insurance

    Yes, up to $1 million

See our methodology, terms apply. To learn more about IdentityForce®, visit their website or call 855-979-1118. 

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.