Types of Accounts

The scoring system grades each of us on 5 factors. One of those is our types of accounts

The types of accounts section of the credit scoring model determines 10% ( or up to 85 points) of the credit score.

What this means essentially is that some types of debt are considered desirable and some debt is considered undesirable. At least that is how the FICO system looks at our credit file when assigning a credit score. And all the points matter!

Basically, if person one has a mortgage and no other credit, then person one will receive more of the "Types of Accounts" points (up to 85 points) than person two who has only a Kohl's credit card. The reason is that a mortgage is a desirable debt (meaning of more benefit in the scoring model), than a store credit card which is an undesirable debt.

For these "85 points" it doesn't matter how long you have had the account or how well you have paid. Although length of credit and pay history influence credit scores, for this topic I am discussing only the impact of "types of accounts". For "types of accounts", we must all be aware that gasoline cards, finance company loans, and regional store chain accounts are considered UN-DESIRABLE credit and can have a negative influence on a total score.

This negative influence can happen because by carrying a number of "UN-DESIRABLE" accounts provides a risky (at least to the credit scoring system) mix to your total credit file. A risky mix will cause you to lose some of those 85 credit scoring points.

This factors helps explain why those with mortgages paid well will have a better score than consumers who only rent. Renters do not have mortgages (A DESIRABLE ACCOUNT). The absolute best item to have on your credit file is a well paid mortgage. Two people with perfect pay histories with one person having a mortgage and the other not having a mortgage...........the mortgage always wins.

I would support a credit scoring system that was based only on credit pay history....but that system does not exist. We must follow the rules of the current system.

My advice: BE A HOME OWNER! Call your realtor today!!!!!

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