This post is part of a continuing series on understanding your FICO credit score, where we delve into detail to explain each component of your credit score calculation. In the first three parts of this series, we explained how payment history, amounts owed, and the length of your credit history influence your FICO credit score. In this post, you’ll learn about the next largest factor in your FICO score, the length of your credit history.
Part 4: Credit Mix (10%)
10% of your FICO score relies on what types of credit accounts you use, such as credit cards, retail accounts (such as a department store card), installment loans, and mortgages. Having experience managing both revolving and installment types of loans responsibly may give lenders more confidence. However, it is not necessary to have one of each, and taking out a loan you don’t need is often not a good idea.
In addition, your credit score looks at the total number of different credit accounts you have. There is no magic number, however, and how many is too many depends on your overall credit picture.
Closing an account will not make it go away – lenders will still be able to see that you paid off the account. However, as discussed in Parts 2 and 3, it may still impact your score by affecting your length of credit history as well as your utilization ratio, so think twice before closing old accounts.
Read the final post in this series on New Credit here.