NJ First-Time Home Buyers

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Credit Scoring - Mix of Accounts (5 of 6)

One of the 5 main catagories in the credit scoring model is the mix of credit accounts.  The mix refers to different accounts such as mortgages, auto loans, installment loans, and credit cards.  A person's mix of accounts represents 10% of their overall score.   

It is preferable to have a mix of accounts such as installment loans and 3-5 credit cards.cogs

Having more than 3-5 credit cards is fine.  Technically you could have as many as you want.  One thing you have to keep in mind though with having so many cards is the effect it has on your credit history and inquiries (see post 4 and 6 of this series for more information).  If you constantly have new credit cards, and your older cards are inactive, then your history is shallow and this could lower your score. 

Having a major credit card like a VISA or MasterCard is better for your credit then, for instance, a department store card like a Target or Home Depot card. Why is that? The credit scoring model takes into account 1,000's of consumer profiles.  Although such stores offer special incentives like 0% financing for 12 months, in the past stats have shown that individuals that utilize such a card are consumers that weren't able to obtain a major credit card.  Likewise a consumer with only an HSBC card for instance, may not have as high a rating as someone with a major credit card.  This is because such a company has lax guidelines in comparison (and higher rates) and is often associated with consumers that carry more risk. 

In my personal opinon, from what I have seen, I see nothing wrong with taking advantage of 0% financing options.  However, one major issue that arises is that many such financing options carry all of that interest and if the loan isn't paid off in the "12 months", and you find yourself at 12 months and one day, then you get smashed with a year's worth of interest.  TOO LATE!!  And certainly too bad. I've seen them add several $1,000 to accounts. 

One other tip ... a Home Equpeople puzzleity Line of Credit (HELOC) should be greater then $40,000 or it may report as a revolving account versus a mortgage.  This is important because as mentioned in the article, "Credit Scoring - Balances", even though the HELOC is a mortgage, if it is maxed out and viewed as a revolving account (i.e., credit card), then your balance ratio being so high could lower your credit score.

There is one more article in this series.  I hope that you have found these articles helpful, and as always, if you have any questions, or would like your own credit reviewed to maximize your credit score, don't hesitate to contact me.  Making little changes and working together over time will save $1,000's, even $10,000's.  ~ Steve Kappre

 

 

Credit Scoring – What Makes Up My Credit Score? (1 of 6)

Credit Scoring – Payment History (2 of 6)

Credit Scoring – Balances (3 of 6)

Credit Scoring – History (4 of 6)

Credit Scoring - Mix of Accounts (5 of 6)

 

 

Comment balloon 2 commentsStephen Kappre • October 26 2008 02:33PM

Comments

Steve - these posts are great tips and info for the consumer... and the realtors too as they can educate their buyer clients more as well early in the process.

Posted by Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate (Realtor / Owner - RE/MAX Access) over 9 years ago
ACyxYQ Wow! Great thinking! JK
Posted by Gerrilyn about 7 years ago

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