Types of credit in use also known as “credit mix” refers to what types of credit accounts are being used. To have and maintain a high credit score consumers need to show the ability to properly control a variety of credit accounts. Consumers should not be overly cautious in regard to their credit mix as consumers will acquire credit accounts based on need, but as they build their credit file they need to be aware of potential positive and negative actions.
Credit scoring models want to see a variety of different credit accounts being used without too many of any one type. Those consumers with good credit scores and a long credit history may be able to overcome a poor credit mix. A credit challenged person with a short history may not.
A mortgage account in good standing is one of the most positive accounts to have in your credit mix, while it is technically an installment account many credit reports will separate it from other installment loans. Mortgages are positive because over the long term they assist in building wealth for the consumer, not only do they have an ownership stake in real property each payment builds equity in their financial portfolio.
Installment and revolving accounts are very desirable on a credit report as long as they are in good standing. These show creditors that a consumer has the ability to handle different types of credit accounts responsibly. While a good credit mix will include both of these types of accounts, having too many in either category may become negative. It may be very difficult to establish how many accounts of each kind a consumer may have on a credit report as this will be determined by how well the consumer is doing in the other four categories of credit scoring. A general rule of thumb would be at least one, and no more than three of each.
Quality of the source on these accounts is another factor to consider. Finance companies have lower credit standards than Banks and Credit Unions; therefore the credit scoring models judges them differently. Having multiple Finance Company loans may eventually begin to drop the credit score. The same can be said about revolving accounts, while gas and department store credit cards are easier to obtain, the credit scoring models give more weight to the major credit card carriers (Visa, MasterCard, Discover, and American Express).
Where do I find “Types of Credit in Use” on my Credit Report: Many credit reports will offer a summary page that will record the total of each type of accounts listed; Mortgage Accounts, Installment Accounts, Revolving Accounts, and Total Open Accounts.
If the credit report does not contain a summary page you will need to view each separate account listed on the report. Check the line called Type or Account Type. This will list the segment of credit that this account belongs in.
