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Types of Credit
Types of Credit = 10% of your Credit Score (877) 254-6900
The Types of Credit or types of accounts on your credit report influences 10% of your FICO Score. You are being judged based on your ability to show that you can responsibly manage a variety of different types of accounts as opposed to just one type of account.
For example, if all you had was car loans and student loans (both of which are installment loans), the lenders will think to themselves, "Well, this person can clearly handle their installment loans in a responsible manor but what would happen if we gave them a credit card? We don't know! There is no evidence that this person can handle revolving accounts in a responsible manor at this point in time. I see risk."
It is best to show that you can actively handle any type of account in a responsible way. Having a healthy variety of different types of accounts will help to maximize your FICO Score.
The Types of Credit or types of accounts on your credit report influences 10% of your FICO Score. You are being judged based on your ability to show that you can responsibly manage a variety of different types of accounts as opposed to just one type of account.
For example, if all you had was car loans and student loans (both of which are installment loans), the lenders will think to themselves, "Well, this person can clearly handle their installment loans in a responsible manor but what would happen if we gave them a credit card? We don't know! There is no evidence that this person can handle revolving accounts in a responsible manor at this point in time. I see risk."
It is best to show that you can actively handle any type of account in a responsible way. Having a healthy variety of different types of accounts will help to maximize your FICO Score.
So what are the different types of accounts and what is the best way to show diversity on your credit report?
Most accounts will fall into two basic categories: Revolving accounts and Installment accounts. Revolving accounts include credit cards and department store charge cards. Installment accounts include mortgages, car loans and student loans.
The FICO Scoring system recognizes five different types of accounts.
These are the Types of Credit identified by the FICO Scoring system:
Installement
Revolving
Mortgage
Line of Credit
Open (which are credit cards without a credit limit or unclassifiable accounts)
If you ever get the chance to review a credit report that actually contains FICO Scores, you might notice that each account has a specific coding.
R1 = Revolving
I1 = Installment
M1= Mortgage
L1 = Line of Credit
O1 = Open
(***the number located next to the letter indicates the status of the account. 1 means paid on time. 9 means the account is in collections.)
The more of these different types of accounts that you can add to your credit team, the more points you will capture from this section of your credit score.
The FICO Scoring system recognizes five different types of accounts.
These are the Types of Credit identified by the FICO Scoring system:
Installement
Revolving
Mortgage
Line of Credit
Open (which are credit cards without a credit limit or unclassifiable accounts)
If you ever get the chance to review a credit report that actually contains FICO Scores, you might notice that each account has a specific coding.
R1 = Revolving
I1 = Installment
M1= Mortgage
L1 = Line of Credit
O1 = Open
(***the number located next to the letter indicates the status of the account. 1 means paid on time. 9 means the account is in collections.)
The more of these different types of accounts that you can add to your credit team, the more points you will capture from this section of your credit score.
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