When did you request your first loan or credit card? As soon as you opened your first loan or credit card account a credit report with your name on it started keeping tabs. Whether you’ve had credit for three months or 30 years can actually make a difference in your credit score. Some credit bureaus combine how long you’ve been using credit and what types of credit you have (also known as a mix of credit) into a single factor while others separate the two. Nonetheless, it’s important to understand them because they have an impact on your credit score. Here’s what you should know about the age and mix of credit.
Age of Credit
The credit scoring algorithms calculate the average of how long all your accounts have been open. That average age of accounts is your “credit age.” The reason credit age is important to lenders is that it helps to determine the level of risk they take on when lending to you. In theory, a longer history means you have more experience using credit. There’s not much you can do about the age of your credit except to stay in good standing.
There’s also no set amount of time required to achieve a certain credit score. Generally, you need to have at least one account open that’s been reporting to the credit bureaus for six months to generate a credit score. Keeping your accounts in good standing and paying at the minimum on time is important from the very first account you open.
Mix of Credit
As we mentioned before, there are some credit bureaus that combine age and mix of credit and others that separate them. FICO, for example, separates them, and the mix of credit determines 10% of your credit score. Mix of credit, or credit mix, refers to the different types of credit accounts that make up your credit report. Different types include credit cards, student loans, car loans, and mortgages.
Having different types of credit can have a positive impact on your credit, but remember only makes up a small percentage so you shouldn’t go overboard in creating a diverse credit portfolio. There’s no way to know ahead of time if taking a certain action like opening a different type of credit will affect your credit score. It depends on the unique information within each person’s credit report. Taking out a mortgage might have a bigger effect on one person’s score versus another.
Mix of credit and age of credit, while not a huge part of your credit score, does still make a difference. If you’re interested in learning more about other factors that make up your credit score, check out our blog on credit utilization and credit history. Still have questions? Give us a call at 800-354-3400.