Types of credit accounts & your credit scores

Just like being able to demonstrate a variety of previous responsibilities at work can help you land a better job, consumers with the best credit scores tend to have a wider range of experience with credit. In other words, they don’t just have a single credit card or a car loan. Instead, their credit reports list a mix of different types of credit accounts (ideally paid on time, of course). Specifically, many credit scoring models are looking for a mix of both revolving accounts such as credit cards, and installment accounts such as mortgages, car loans or student loans.

For some people this factor can be very frustrating. Someone whose home and cars are paid off, for example, may not have any installment accounts listed on their reports. And it’s not unusual for a student who uses a debit card instead of a credit card to only have a student loan (installment account) listed on their credit report. These consumers may feel like they are being penalized for being responsible and avoiding debt.

In these cases, it’s important to keep in mind that credit scoring models must use the information available to them to try to predict future credit behavior. Since personal credit reports don’t include information about assets (bank accounts, home equity or cars owned outright for example) that information can’t be used to calculate credit scores. Instead, they rely on the information reported about types of credit and credit accounts to make decisions.

Also keep in mind that all types of accounts listed on a credit report can help contribute to this factor, even if they are older and have been paid off. Accounts that have been paid off typically continue to appear on credit reports for about ten years.

Types of credit & their impact on business credit scores

Account mix is not much of a factor in business credit scores except in cases where the scoring model takes into account the owner’s personal credit information along with their business credit information. Still, just like personal credit, a business credit scoring model needs data in order to make predictions. So if your business credit report only lists one account, that may not be enough information to produce a score, or to earn a high score. A mix of credit accounts paid on time can be helpful. With D&B’s Paydex score, in particular, you should have a minimum of four reported accounts.

If you check your business credit scores and discover you don’t have many credit references, you may want to consider establishing additional ones. With a free Nav account you can check your personal and business credit ratings, then use the free Business Launcher tool to identify other lenders or vendors that report.