Types of Accounts

Credit scoring is about 5 factors, one of which is "types of accounts"

The "types of accounts" portion of the credit scoring system is worth 10% of the credit score. That means "85" points are awarded or not awarded to each of us based on this particular portion of the credit scoring system.

It works this way. The scoring model will look at each credit file and award anywhere from 0 to 85 points based on the types of accounts in the credit file. The ideal file has five open accounts. One mortgage, two personal loans (auto, student, or consumer loans), and two credit cards. If someone rents then obviously they will not show an open mortgage on their credit report. The end result is that this borrower (who is not a home owner) will not get all 85 points.

Keep in mind that this portion of the scoring system does not care whether the payments have been paid on time or how long your account has been open. These 85 points are granted merely for having open accounts. Once an account is closed, you lose that impact on this factor of the credit score.

So the ideal file has 5 accounts as I wrote in the second paragraph. If someone has 6 or more accounts, then they lose points. If someone has 4 or fewer open accounts, they lose credit scoring points as well. If someone like myself has more than one mortgage because they own rental property, they lose points. If someone has no consumer loans, student loans or car loans, then they will lose credit scoring points too.

This portion of the file is all about have enough accounts (5) to determine a well rounded credit file. All credit cards or no credit cards, all consumer loans or five mortgages will not meet the qualifications to receive the full 85 points awarded in this segment of the scoring system.

It is definitely not perfect and makes no sense that this should matter in my opinion, but that's the way it is!

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