Home-Buddies

Recipe for a Good Credit Mix - Types of Accounts

As with any good recipe, we need to pay attention to the variety of the ingredients that are necessary to get good results. Hey, nobody wants to buy a cookie that is missing some ingredients because it will taste bad! This recipe applies directly to a person’s credit mix in their credit report.

The types of accounts (credit mix) that you have within your credit report will make up about 10% of your credit score. These accounts are your ingredients and will be an indicator of what level of credit risk that you are. There really isn’t one particular recipe that all of us should follow for our account mix. You might need to add some “chocolate chip cookies” to look good and someone else might need to add “peanut butter cookies”. Your credit score can be improved by having the right mix of account types. So make sure that you have some diversity.

There are 3 common categories that accounts are usually referred as: Revolving, Installment, or Open.

Revolving Accounts – (have different payments each month that depends on the current balance)

Examples of revolving accounts are:

• Credit Cards Issued by a Bank or a Credit Union – like Visa or Mastercard. A history of these accounts is kept even if it is closed.
• Credit Cards Issued by a Non-Bank – examples are Discover or American Express.
• Retail Store Cards – these are used only at those particular stores like JC Penney, Target, Dillards, etc.
• Oil Company Credit Cards – can only be used at specific locations, like Exxon, Shell, etc.
• Home Equity Lines of Credit (HELOC) – these loans allow you to access part of your home’s equity, so the payment is determined by the amount borrowed or used.

Installment Accounts – (have fixed payments each month until the loan is paid in full)

Examples of installment accounts are:

• Auto Loans
• Mortgage Loans
• Student Loans
• Home Equity Loans (not HELOC) – differs from HELOC because you have a fixed amount of money that you borrow.
• Signature Loans

Open Accounts- (you pay back the full amount at the end of each month)

Examples of open accounts are:

• Cell Phone
• Utilities

So pay attention to your personal recipe for your credit mix and try to get the maximum points available. You don’t want to have too many of one type of account and not enough of another. Your credit score is going to reflect all of your account types and tally them up.

There are a few actions you can take to try and improve the points in your credit mix:

• Having a mortgage/car loan – this shows that you are capable, responsible and stable with credit.
• Don’t have too many credit cards - more is not always better!
• Make sure all your accounts are showing – you can’t get any credit points if they aren’t being reported to the credit bureaus.

Good luck.

Barbara Partaka
Home-Buddies