When you're trying to maintain the healthiest credit standing possible, you probably know there are a lot of considerations that go into determining it. However, one that can often be important, but is sometimes overlooked, is the number of different account types you have in your name.
Usually, when you're doing a bit of routine credit repair work, you're probably used to focusing on major factors such as the ways in which you make all your monthly payments, as well as keeping your debts as limited as possible, and you're right to do it. Those two concerns alone make up 65 percent of your credit score, and thus are vital to maintain. However, that doesn't mean you should ignore other factors that go into its calculation, and that includes having a number of different account types, not just accounts, in your name at any given time.
The reason this is important
While it is tied with recent application history for making up the smallest credit scoring factor, accounting for just 10 percent of your rating, that much can still have a substantial impact on whether you have a strong or relatively weak credit score. It is for this reason that maintaining an ideal credit mix is vital to being able to obtain the best possible terms, including low rates and few or no fees, on all the credit you might want in the future.
The issue, then, becomes what makes up a healthy credit mix, and why this is so highly valued. The answer to the latter issue is relatively easy to understand: Lenders like to see consumers who they think will be able to handle their accounts as responsibly as possible, and if you can maintain a number of different accounts, with different balances, general repayment rules, interest rates, and so forth, that shows that you generally have a pretty good head on your shoulders when it comes to managing your finances overall.
So what makes up a healthy credit mix? That's a little trickier to get a handle on exactly what constitutes a strong variety of account types, but in general, the number of credit cards issued by both traditional lenders and retailers, installment loans, accounts with finance companies and mortgages are all considered when looking at this factor of your score. The thing to keep in mind is that you don't necessarily have to have all of these to maximize this portion of your score, but rather focusing on having at least one of each loan type when it comes to both revolving and non-revolving credit (i.e. credit cards and installment loans) can certainly be vital. If you're really only controlling one type of account in this regard — for instance, if you don't have a credit card of any kind, and only have student or auto loans — you might be doing yourself something of a disservice.
What to watch out for
However, it's also important to note that if you think your credit score is lagging somewhat, you should still try to avoid opening accounts that you don't intend to use. For instance, taking on a credit card just for the sake of having a credit card might end up doing more harm than good, because another 15 percent of your score is made up of the average length of time you've had all your accounts, and that will necessarily decline if you open a new account.
It's also important to note what happens when you successfully pay off an installment loan in full. Say, for instance, you are finally done paying off your car loan. This can hurt your credit mix if you don't have any other installment loans in your name at all, but because most consumers generally do, the effect will be negligible. Of course, when it comes to paying off credit cards, this can be a little trickier, since you're allowed to maintain the accounts even if you're carrying a zero balance. As long as you do not cancel it, the card will remain part of your credit mix overall.
Finally, when you're trying to maintain a strong credit rating, it can also be easy to forget how important it is to routinely check your credit reports for any potentially unfair markings that may be having a potentially profound negative impact on your score. For this reason, if you discover any such entries in the course of reading over these documents, it may be wise to work with a credit repair law firm. This may allow you to get the issues cleared up with relative expediency, and return your standing to where it deserves to be.