Do You Have Enough Credit?

Most people worry about having too much credit: too many accounts, for example, or too much debt. But rarely do they worry about whether they have enough credit. Sometimes they should.

One of the five main factors in most credit scores is “account mix,” which looks at the different types of accounts listed on a consumer’s credit reports, including revolving accounts (like credit cards) and installment accounts (such as mortgages or student loans). Generally, having a variety of different types of credit accounts can contribute to a higher score.

How you handle the credit you have is the most important factor in your credit score, of course. Payment history and debt usage account for around 60% or more of your score. Although the mix of accounts listed is a less significant factor (often around 10% of the score), the points you earn for this factor could be enough to push you into a higher credit score range — or not. Sometimes every point counts.

For example, Margaret (see graphic) checks her credit score and learns she is earning a C- for her account mix. Why? She has two revolving accounts but no mortgage, auto or student loans. In other words, she has no installment accounts. While it is possible for her overall score to be high, if it’s not, she may want to consider another type of account.

account mix

Tips for Improving Account Mix

Before you try to fiddle with anything on your credit reports, make sure you fully understand what will help — and what won’t. That means getting your free annual credit reports to make sure they are accurate, and getting a free credit score that explains the factors that affect your score. If this analysis reveals that your account mix is a problem, consider taking steps to improve it. For example, you can:

Consider consolidating credit card debt with a personal loan. If you qualify for a lower-rate personal loan, you’ll not only save money on interest but you may give your credit score a boost over time. Why? Personal loans are installment loans, which means you may improve your account mix if you’re short on that kind of credit references. In addition, you may reduce the debt usage ratio on your credit cards (the factor that compares your balances to your credit limits) and improve your score there as well.
If you are offered a really good deal on an auto loan — 0% financing, for example — consider taking it even if you can afford to pay cash. You can always pay the loan off early if you don’t like the idea of making car payments for the next few years.
Get a credit card. Even a secured card with a small limit can help you build an additional positive credit reference as long as you keep the balance low and pay on time.

You can find out which factors are affecting your credit scores, check two of them monthly and get an action plan for your credit for free at Credit.com.