What is Credit Mix, and Why Should You Care? - 1st Source

Ever dreamt of snagging that new phone, starting your own online store, or buying a house? Well, to achieve your goals you’ll need to borrow money—a credit card, a loan, or a mortgage.  How much you can borrow and what rates you’re eligible for depends on your credit.  And a big part of that is your credit mix. So, what is credit mix, exactly? Let’s break it down.

Credit mix is not just about having credit; it’s about what kinds of credit you have and how you manage them. It makes up 10% of your FICO credit score.  It’s a key ingredient to building a solid credit score, especially if you are just starting out.

Types of Credit

Your credit mix includes different types of credit, like revolving credit and installment credit. Revolving credit is like a credit card. You have a limit, and you can spend, repay, and spend again – like a revolving door. Installment credit, on the other hand, is for loans where you borrow a set amount and pay it back in fixed installments, like a student loan or maybe a car loan.

Your Financial Reputation

Now, why should you care about credit mix? Well, your credit score is your financial reputation. It tells lenders how likely you are to repay borrowed money. A good credit score opens doors to all sorts of things you want: getting a new car, renting an apartment, maybe even funding that killer app idea you’ve been working on. It also means lower interest rates on loans – saving you serious cash in the long run. Imagine getting a student loan with a lower interest rate because you’ve got a great credit mix. That’s money in your pocket!

Building a Good Credit Mix

So, how do you build a good credit mix? First, a credit card is a great place to start. Use it wisely! Keep your spending low (we call that credit utilization), and always pay your bills on time. It’s like keeping your phone charged – you don’t want to run out of juice! 1st Source has different credit card options, so you can find one that fits your needs.

Next, think about installment loans, but carefully. Student loans are a common example. Manage them well – on-time payments are crucial. Taking out a loan just to build credit isn’t always the smartest move. It’s like buying a new gadget you don’t need – it can drain your resources. Only take out loans you truly need and can comfortably repay.

Here are a few tips:

  • Get a Credit Card (Responsibly): A great starting point. Use it for small purchases and pay it off in full and on time every month. Think of it like a training ground for good credit habits.
  • Keep Spending Low (Credit Utilization): Aim to use only a small portion of your available credit (ideally under 30%). It shows lenders you’re not overspending. It’s like only using a little bit of data on your phone plan.
  • Pay Bills On Time, Every Time: This is the most important factor. Set up reminders or automatic payments so you never miss a due date. It’s like setting an alarm so you don’t miss work.
  • Consider Installment Loans (Strategically): Loans like student loans or car loans can add to your credit mix, but only if you need them and can afford the payments. Don’t take out a loan just for the sake of it.
  • Monitor Your Credit Report: Check it regularly for errors and track your progress. Free resources are available. It’s like checking your phone for updates – you want to stay informed!
  • Be Patient: Building good credit takes time. Don’t get discouraged if you don’t see results overnight. It’s a marathon, not a sprint.

Credit Mix Myths

Now, let’s bust some myths about credit mix. One common misconception is that having tons of different credit types is the magic formula. Not true! It’s about managing what you have responsibly. A couple of well-managed accounts are way better than a bunch of maxed-out cards. Also, checking your credit score doesn’t hurt it – as long as it’s a soft inquiry. It’s like checking your social media feed – no harm done! Don’t worry, checking your credit score on the 1st Source Bank app won’t hurt your score.

Another myth: closing old credit cards is always bad. It’s not that simple. Closing your oldest card can shorten your credit history, which isn’t ideal. But closing a newer card that you barely use? That might actually be a good move. It’s all about strategy. Finally, credit mix isn’t the only thing that matters. Your payment history is the biggest factor. It’s like showing up on time – it makes a great impression!

The Takeaway: Your Financial Future Starts Now

Building a good credit mix takes time, but it’s an investment in your future. Start now, be responsible, and you’ll be well on your way to achieving those awesome goals. Understanding what credit mix is and how it works empowers you to take control of your finances. So, go out there and build a bright financial future!