Different Types of Credit

How Does Applying for Different Types of Credit Affect Your Credit Score?


Applying for a loan or credit and making payments on time is one of the ways you can use to improve your credit score. But this is not the only option available to people who want to have an attractive credit score-the type of credit score that can qualify you for higher loan amounts with more affordable interest rates. The second option is to apply for different types of loans.

The reason behind this is that credit mix contributes 10% of your credit score. But this also doesn’t mean that applying for a single loan will have a negative impact on your credit score. Actually, credit mix is among the least considerations when it comes to factors that affect consumer’s credit score. But it can still go a long way in helping you achieve that attractive credit. But even after applying for different types of credit, it is equally important to make payments on time. This will portray you as a responsible borrower to the money lenders and since it reduces their risk, you will stand a higher chance of getting approved for a loan.

Factors determining a consumer’s credit score

Having high FICO scores will always save you a great deal of time and money. If your score is good, you can easily qualify for loans with more affordable terms and lower rates of interest. The first step is to know where you stand as far as your FICO score is concerned and the factors used to determine the score. After that, you can take the necessary actions to ensure that the score improves. The lowest credit score in the FICO scoring model is 300 and the highest score is 850. There are 5 main factors used to come up with FICO credit scores. These include:

  •         Your payment history- 35%
  •         Credit utilization -30%
  •         Length of credit history- 15%
  •         New credit- 10%
  •         Credit mix-10%

New credit and your credit mix constitute 10% each of your FICO credit score. The new credit category focuses on loans or credit that you have recently applied for. But as much as only 10% of your FICO score is determined by your credit mix, FICO considers consumers with a different variety of loans as less risky compared to those who only have one type of loan.

What is a good credit mix?

Vector of a businessman pushing scale changing credit information from poor to good.

10% of your FICO score is determined by your credit mix. But having a good mix of credit does not mean that you should apply for every type of loans and credit card that you see in adverts. It actually means that you should have different open credit lines for your score to improve. A good credit mix, for instance, may be inclusive of a title loan, a mortgage, a credit card and one store card.  Bet even if you haven’t applied for any of these, there are still other ways you can use to improve your credit card. For instance, you can focus on paying your debts in full and on time considering that your credit history adds up to 35% of your credit score. This can go a long way in proving your score, rather than focusing on your credit mix which contributes only 10% of your score. You should also bear in mind that every time you apply for new credit, your score will temporarily drop. So if you want to improve your credit score by having a good credit mix, it is advised that you open accounts at intervals of four to six months.

So what are these credit mix that FICO considers?

To come up with the 10%, FICO looks at the number and types of loans or credit you have as indicated in your credit report.  When you apply for credit, lenders report your credit behaviors to the 3 major credit bureaus which include this information in your credit reports. It is important to note that even if you have outstanding loans from the past, it will store show in your credit report, and this can negatively affect your score. The information in your credit report from the 3 major credit reporting agencies may also vary. The different types of credit that you can apply for to improve your score include installment loans like auto loans, student loans and mortgages, credit cards and even rental data.

When it comes to rental data, paying your rent on time doesn’t improve your credit score. But if the information appears on your credit score, together with information on other types of loans or credit that you have applied for and paid on time, it can be beneficial. Having different credit mix also doesn’t mean that you should go applying for every type of loan that you qualify for. Even having one credit card account and a small installment loan is good enough, provided that you pay your debts on time.

Credit Score Chart or Pie Graph with Realistic Credit Card

If you opt for a credit card, bank credit cards are more convenient considering that they have a lower rate of interest. Applying for different types of credit also has its own demerits. For instance, lenders have to do a hard inquiry before approving your loan. Too many hard inquiries on your credit report can greatly affect your score. Again, it may be challenging to handle different types of credit in a responsible manner. Instead of taking out a new loan with the main aim of improving your credit score, it is actually prudent to concentrate on the main things that contribute towards getting a better credit score. These are your payment history, credit utilization and the age of your credit. This means that you need to pay your bills on time, ensure that your credit card balances are low and only apply for a new loan whether there is an urgent need for it. Another important issue to note is that it is better to apply for a new credit card with the main aim of using it rather than proving your credit score. There is actually no point in opening a credit account if you won’t use it.


Paying your balances on time and keeping your credit card debts low are the most effective ways to guarantee you an improved credit score. Good credit mix can also help rebuild your credit, but it plays a very small role. Someone may refer to it as icing on the cake. This means that it is actually one of the least factors when it comes to improving your score. If for instance, you don’t intend to use a credit or store card, there is no need of applying for one with the mere aim of improving your credit. You only need to make timely payments for your existing loans or credit, which will also benefit your credit score.

Copyright © 2019 DeDebt.com | All Rights Reserved