If you’re trying to establish or build your credit history and score then having the right mix of credit types will help. As it's one factor that is generally considered when calculating your credit score. Typically when you think of credit accounts you have - you’re probably thinking of either credit cards or loans. But there are others out there.
What are the different credit types?
According to Equifax there are four main types of credit accounts you could find on their credit reports.
This type of loan is one that is paid back, regularly over time, normally with interest. And typically the payment stays the same. When the loan is repaid the account is closed. An example of this type of loan is a mortgage or a student loan.
With a revolving credit account, there is normally a credit limit set by the lender (i.e you can borrow money up to a certain amount.). Then you choose if you want to pay off the balance in full at the end of a billing cycle or carry over a balance from one month to the next or ‘revolve’ the balance. If you choose to do this there will normally be a minimum amount to pay back each month, plus interest.
Once that amount has been paid back, it is then available to be borrowed again. An example of revolving debt would be credit cards or lines of credit.
An open account is where the balance is due to be paid in full each month. Where payment of the balance in full each month is required , rather than allowing you to pay over time. Some credit card lenders provide this type of credit.
There are different types of mortgage accounts. Aside from an installment type mortgage loan, you can also get fixed and variable type mortgages, where the interest rate can be fixed or variable.
What if I don’t want to have a mix of credit types?
If you only have 1 type of credit account in your profile, you probably won’t see a massive impact on your score. And in time you may be able to get to your desired score.
But if you want to get there faster, you may want to consider getting an alternative type of credit. As, generally, lenders and creditors like to see that you have a diverse credit mix – in other words, you’ve been able to manage different types of credit accounts responsibly over time.
Don’t forget there are other factors that are used to calculate your credit score too. So be sure to consider all your options!