Across the country, Americans are managing over $1 trillion of credit card debt – and many are also navigating financial stress and emotional strain in light of high-interest debt.

The Credit Check-In, a new study from Happy Money, uncovers how Americans are feeling about their finances, what actions they're taking to manage debt, and where they may be missing opportunities to lighten the burden of credit card debt and build momentum toward their financial goals. 

The 2025 Credit Check-In Report by Happy Money reveals how Americans are navigating rising credit card debt and financial stress. Drawing from a national survey of 2,000 U.S. adults, the report highlights key financial behaviors, identifies missed opportunities in debt management strategies, and explores how tools like personal loans can improve financial outcomes.

Designed for both consumers and the financial institutions that serve them, this report offers a data-backed look at credit behavior trends and practical solutions for the year ahead.

Key Findings: Financial Stress, Debt Behavior & Consumer Inaction

42% of respondents say they are concerned about their credit card payments.

42% of those say that concern has affected their mental health, and 34% say it's impacted their sleep.

Paying down debt is one of people's top three financial goals; 36% cited it as a top goal.

Yet, 21% of respondents have taken no steps to manage debt or reduce financial stress in the past six months.

Only 8% have consolidated or refinanced their debt in the past six months.

The findings reveal a clear gap between people's financial goals and the actions they're taking – revealing an opportunity to provide strategic financial tools and guidance to help them make progress.

This report explores what strategies people are using today and how structured financial solutions like personal loans can help consumers reduce stress and build confidence in their credit journey.

The Mental & Emotional Cost of Credit Card Stress

Our survey found that credit card debt is affecting more than just bank accounts and household balance sheets. Of the 42% of respondents who report concern over their credit card payments, nearly half (42%) say this concern has had a direct impact on their mental health, and over a third (34%) say it has disrupted their sleep.

For many people, the impact of credit card debt is not just about the amount they owe. It's about the complexity of juggling multiple balances with different interest rates and payment dates. It can feel overwhelming to figure out the fastest path forward to paying off this debt.

It's no wonder credit card stress is affecting day-to-day realities like work performance and family dynamics. This reality underscores the need for financial tools that support consumers' efforts to reduce high-interest debt.

"The Credit Check-In confirms what broader economic data has shown: many Americans are   feeling the strain of a high cost of living and are cutting back, delaying major purchases, and relying on credit to manage expenses." — Matt Potere, CEO of Happy Money

The Challenge of Managing Revolving Credit Balances

Many Americans report carrying a balance month to month – a pattern that can make it harder to pay down debt. Our survey found that 37% of people carry a credit card balance every month, and that number rises to 45% for those aged 35–44 and 44% for those aged 45–54.

Credit cards can offer cashflow flexibility, convenience, and a way to build credit history. But when balances carry over from month to month, the interest can add up quickly, turning short-term borrowing into a longer-term challenge – especially with average credit card APRs sitting above 20%.

While many respondents expressed an intention to pay down credit card debt, some are not confident about the best way to achieve that goal. We asked what people’s financial goals are right now, and their top three are:

Debt Actions & Gaps: Why Some Strategies Fall Short

Even though many Americans feel pressure from credit card debt, just 8% of respondents consolidated or refinanced their debt in the past six months – a potential missed opportunity to save significantly on interest and simplify repayment. See below for an example of how much a personal loan could save compared to chipping away at high-interest credit card payments.

This finding is especially striking: 21% of respondents have taken no action at all to manage debt or reduce financial stress in the past six months – despite the reported mental and emotional stress of concern over credit card payments. Among those who are taking steps, many are relying on short-term tactics like delaying purchases or trimming expenses which don't always address the root issue: high-interest credit card debt.

Moreover, some strategies may help in one area but limit progress elsewhere. For example, 21% report using savings to pay down debt, which works toward their goal of debt reduction but may make it harder to build savings or an emergency fund.

Most notably, few are using tools like debt consolidation or structured repayment plans which can offer fixed payments, lower interest rates, and clear payoff timelines to help people repay debt more confidently and affordably.

"Creditworthy consumers may be overlooking responsible borrowing opportunities to reduce high-interest debt faster and more affordably – such as through a fixed-rate personal loan." — Matt Potere, CEO of Happy Money

A smart financial plan uses the right tools for the job, helping people make meaningful progress toward their goals. Many Americans are taking prudent steps like budgeting and saving, but they might be overlooking additional solutions that can improve their balance sheet health and reduce financial stress.

Building and updating a clear monthly budget is the foundation for smart money decisions. It's important to support your budget with wise financial strategies so you feel confident in sticking to your goals.

For homeowners with equity, HELOCs can help fund large expenses like education or home improvements. They often offer lower interest rates for major planned expenses but should be used for long-term value, not short-term relief.

BNPL has become popular for its payment flexibility but can be difficult to track and may soon impact credit scores. While once seen as an alternative to credit cards, BNPL can create budgeting challenges, especially if repayment schedules overlap.

Many consumers may not know they can contact creditors to discuss lower rates or extended terms. You may also be able to work with creditors directly to settle debts for less than the full amount owed, but be aware that this can negatively impact your credit score.

Fixed-rate personal loans can help consumers reduce revolving debt faster, regain control of payments, and lower total interest costs. With fixed payments, lower interest rates, and a defined payoff timeline, personal loans can ease both financial and emotional stress.

How Smart Borrowing Can Support Faster Financial Progress

Many Americans are trying to cut back, delay expenses, or even dip into savings to stay on top of their financial obligations. Rather than relying solely on these strategies, responsible borrowing may give consumers a faster, clearer path to financial relief without hindering other goals. Specifically, personal loans offer a simplified and transparent way to reduce high-interest credit card debt – with fixed terms, one monthly payment and a clear payoff date.

Consider This Scenario: Credit Card Debt vs. Personal Loan

Debt consolidation can save you time and money in the long run. For instance, consolidating $20,000 of credit card debt at 24% APR into a personal loan at 16% APR could save over $7,000 in interest and shorten repayment time by nearly a year.

Moreover, debt consolidation through a personal loan can help you feel more confident and in control of your finances by having a clear plan: one payment, one interest rate, and one defined payoff date. That should be welcome news given that 21% of respondents said they're not confident in their ability to meet their financial obligations over the next six months. The fixed, predictable monthly payments that personal loans offer can help increase consumer confidence and give back a sense of stability and control.

*Rates, terms and savings vary based on credit score and other factors. We used NerdWallet's debt consolidation calculator to estimate savings. Key assumptions: a starting balance/loan amount of $20,000; credit card APR of 24% and $580 monthly payment; loan APR of 16% with a 4-year term and $567 monthly payment. Interest saved is over $7,000. Scenario is for example purposes only.

How Financial Institutions Can Close the Gap

Trusted financial institutions have an opportunity to support consumer well-being by providing guidance and responsible credit solutions designed to help people manage debt and reduce stress. By offering well-structured personal loans, credit unions and banks can:

Support their members' top financial goals

Diversify their portfolios with high-quality, short-duration assets

Smart, transparent personal loans are a win-win for institutions and the people they serve – helping Americans reduce debt and financial stress while optimizing portfolio performance.

"Financial institutions that offer responsible credit solutions such as personal loans are well positioned to attract new customers and strengthen existing relationships." — Matt Potere, CEO, Happy Money

With the right partner, financial institutions can originate high-quality loans, diversify their balance sheets, and grow responsibly by offering financial solutions that are:

A well-structured personal loan can reduce portfolio risk, increase member loyalty, and unlock long-term growth – especially when it's delivered through a trusted partner.

Learn about partnering with Happy Money →

Looking for a Smarter Way to Pay Down Credit Card Debt?

Happy Money helps you consolidate high-interest credit card debt through a fixed-rate personal loan – so you can simplify payments, reduce financial stress, and make progress toward your goals.

Lower interest rates than most credit cards 

One fixed monthly payment and a clear payoff date 

Designed to support you and your financial goals

Check your rate with no impact to your credit →

Happy Money is a consumer finance company that empowers people to achieve their goals through responsible lending. Our loans are built with transparency and ease in mind, giving you more time to do what you love. We save you money with low interest rates and a simple monthly payment schedule. By partnering with credit unions and other trusted financial institutions, we prioritize members’ best interests and work together to offer personal loans with lower rates, no hidden fees, and a clear path to payoff. 

Together with our capital partner network, Happy Money has originated over $6 billion in loans representing more than 300,000 people who have taken greater control of their financial futures. Learn more at happymoney.com. 

About The Report: 2025 Credit Check-In Methodology

The 2025 Credit Check-In Report is part of Happy Money's broader effort to bring timely, actionable insights to consumers and financial partners.

This online survey of 2,000 US adults (nationally representative on age, gender and region) was commissioned by Happy Money and conducted by market research company OnePoll, in accordance with the Market Research Society's code of conduct. Data was collected between June 26 and July 9, 2025. All participants are double-opted in to take part in research and are paid an amount depending on the length and complexity of the survey. This survey was overseen and edited by the OnePoll research team. OnePoll are MRS Company Partners, corporate membership of ESOMAR and Members of the British Polling Council.

What is the 2025 Credit Check-In Report by Happy Money?

The 2025 Credit Check-In is a national study commissioned by Happy Money to explore how Americans are managing credit card debt and financial stress. The report shares key findings from a representative survey of 2,000 U.S. adults and offers insights into debt behavior, personal loan trends, and opportunities for financial institutions to better support consumers' goals.

How are Americans managing credit card debt in 2025?

According to the 2025 Credit Check-In, many Americans are struggling with credit card debt. While 42% are concerned about their payments, only 8% have used tools like debt consolidation or personal loans to manage it more effectively.

What is the mental and emotional impact of credit card debt?

The report found that 42% of those worried about their credit card payments say the stress has affected their mental health, and 34% say it has disrupted their sleep – underscoring the emotional toll of revolving credit.

What actions are people taking to reduce financial stress?

Most consumers are relying on short-term strategies like delaying purchases or using savings. Only a small percentage have taken strategic actions like refinancing or consolidating debt, according to Happy Money's 2025 Credit Check-In.

Why are personal loans a smart option for debt consolidation?

Fixed-rate personal loans can reduce total interest paid, offer predictable monthly payments, and help borrowers pay off credit card debt faster – making them a smarter solution for many consumers.

How do personal loans compare to credit card payments?

The report outlines a scenario where consolidating $20,000 of credit card debt at 24% APR into a personal loan at 16% APR could save over $7,000 in interest and shorten repayment time by nearly a year.

What are the top financial goals for Americans right now?

The top three goals identified in the report are:

How can financial institutions support consumers more effectively?

How Americans are managing debt, credit, and financial stress in 2025 – and the tools that can help

The 2025 Credit Check-In by Happy Money®

It can feel like a struggle to save money. Sometimes, getting creative with your strategies can help. If you’ve ever heard of the 30 day rule, you might be wondering just how it works. What is the 30 day rule, and how can you use it to your advantage?

The 30 day rule is pretty simple. Here’s how it works. Any time you are about to make a non-essential purchase, you instead pause for 30 days. 

After the 30 day wait, you can reassess. Do you still want the item or service you were going to purchase? If so, you can buy it guilt-free, knowing that you took the time to think it through. If you no longer want or need to make the purchase, you can simply save that money instead — or use it for something that does align more with your current wants and needs. 

You head out for some back-to-school shopping for your children. You pick out all the essentials — new clothes, school supplies, and whatever else was on your list. And you spot a new pair of earbuds that would be perfect for your workouts. The problem is, new earbuds weren’t on your list. So, you’re looking at an unplanned purchase of a new item for yourself.

With the 30-day rule in mind, you can mindfully pause. You can move forward with the planned purchases for your children and put the optional purchase on the back burner. 

30 days later, if you still want the earbuds, you can return to the store to buy them. You could even set a reminder on your phone to check in after a month. 

The 30 day rule enables you to spend with more intention. By inserting a pause into your optional spending decisions, you can take time to think about what you really want. 

It’s also a way to remove guilt from purchases. We all make unplanned purchases — and that’s totally okay. But if you find yourself feeling guilty after buying something, the 30 day rule might be a good option for you.

After all, if we can have the self-control to wait 30 days before buying something, and we still want it after that wait, then we can fully enjoy that purchase without guilt. 

How to Maximize Your Money Using the 30 Day Rule

The 30 day rule can help you improve your spending habits, which can result in more intentional purchases, more money saved, and less financial stress. But it’s not all about saving money. It’s really about being intentional, and thinking through your spending decisions. Here’s how to maximize your success with the 30 day rule. 

The 30 day rule can be a powerful boost to help you save more money. After pausing for 30 days, you’ll have had time to think about whether you truly want or need that purchase. And in many cases, the answer will be no.

If you decide not to make the purchase, what should you actually do with the money? Well, you have several options:

Use it to pay down debt or invest (see below)

Open a high-yield savings account to earn more interest

You could choose to make small transfers to your savings every time you decide not to make a purchase. Or, you could transfer once a month based on your spending habits for the previous month. 

For an even bigger boost to your personal finances, consider using your new savings to invest or pay down debt. 

Paying off debt should generally be your top priority, particularly if it’s high-interest debt. This can help you save money on interest, lower your total debt, and even improve your credit score. 

Investing for the future should also be a top financial goal. You can start a brokerage account to buy stocks, or contribute money to your workplace retirement account. 

Remember, money can’t buy happiness — so if you truly do want that purchase, and it might bring you joy or satisfaction, be sure to enjoy it guilt-free.

The 30 day rule isn’t about being a stickler and never spending money. It’s just about pausing to intentionally think about your purchases before making them. If after a month of waiting you still want the item or service, go ahead and buy it — and enjoy. 

Spending decisions don’t have to be all-or-nothing. You can also choose to split the difference, so to speak. 

For instance, let’s say you are thinking about buying a new patio furniture set, but you decide to use the 30 day rule to wait it out. After 30 days, you decide that you really do want some outdoor furniture — but you realize that you really only need a few chairs to enjoy your porch. Instead of opting for the expensive set, you can choose to purchase some inexpensive chairs — and save the rest of the money for a rainy day. 

If you’re on the fence, you can simply keep the money in a sinking fund. You can later use the money to make the purchase, or repurpose it for one of your other financial goals (like paying off debt or saving for retirement).

See What the 30 Day Savings Rule can do for You

The 30 day rule is a unique approach to spending decisions that can encourage more intentional spending. It can help you develop a savings mindset, while also enjoying the purchases you do make with less guilt. Give it a try and see how it works for you. 

The 30 day rule asks you to pause for one month before making an impulse purchase. Learn how the 30 day rule can give your savings a boost.

The 30-Day Rule: Avoid Impulse Buys | Happy Money

What Is the 30 Day Rule for Personal Finance?

Your credit score can influence many aspects of your personal finances. A good score can make it easier to get approved for loans, rent apartments, and secure better interest rates. A bad score can hold you back in your personal finance journey, making everything more difficult — and more expensive. Credit scores are complex, though and understanding how credit scores work is often the first step toward improving your own score. 

A credit score is a numerical score that measures your creditworthiness, or your estimated ability to pay back loans. It’s based on your credit history, which includes how you’ve handled debts and payments in the past. 

A good score tells lenders that you are likely to be able to repay your debts. It means less risk for the lender, which makes them more willing to lend.

A lower score tells lenders that you are riskier and that you might not be able to repay your debts. This can make lenders more hesitant to lend you money — and often means that you’ll pay higher interest rates if you are approved. 

There are a few different credit scoring models, but the most common is the FICOⓇ credit score. The FICO model is used by around 90% of U.S. financial institutions. 

FICO credit scores range from 300 to 850, with 850 being the best possible score. Scores can be lumped into the following score ranges:

Your credit score is made up of data in your credit report. Lenders report information about your credit usage to the credit bureaus, which use this data to compile your credit report and calculate your score. This data includes information on how you’ve handled credit cards, loans, mortgages, and other forms of credit. 

There are five broad categories that go into your credit score:

Payment history - 35% of your credit score

Credit history length - 15% of your credit score

Payment history is a record of all the payments you’ve made toward your debts. It’s the most important credit scoring factor, making up 35% of your total credit score. 

Each time a payment is made, the lender reports that data to the credit bureaus. Each on-time payment will improve your payment history and slightly boost your score. 

Late payments, missed payments, or delinquent accounts will damage your score. Even a single late payment can ding your score significantly. Consistency is vital when it comes to improving your score over time with your payment history.

Simply keep making on-time payments on all your accounts, and this factor will improve over time. To avoid accidental late payments, it’s a good idea to set up autopay on all your accounts. 

Amounts owed refers to the amount of money you have borrowed and currently owe. It’s another very important factor, making up 30% of your credit score. 

From a credit rating perspective, owing money isn’t necessarily a bad thing — it’s more about how much you owe, compared to how much is available for you to borrow. 

Lenders primarily look at factors like your credit utilization ratio, which is the percentage of your available credit that you are using. For example, if you have a total credit limit of $10,000, and you have a total debt balance of $4,000, you are using 40% of your available credit ($4,000/$10,000). This means your credit utilization ratio is at 40%. 

If you are using the majority of your available credit, lenders might view you as a higher risk to default on your debts. A lower credit utilization ratio signals to lenders that you are responsibly using your available credit lines, and are a lower risk. 

Aim to keep your credit utilization ratio under 30%. In other words, try to use less than 30% of your available credit at any given time. This applies to per-card utilization as well as total utilization. Try not to use any more than 30% of your credit limit on any credit card, while also keeping your total balances under 30% of your combined credit limit. 

Credit history length refers to how long you have been actively using credit and making payments. It makes up 15% of your credit score. 

The primary way credit history length is measured is by looking at your average age of accounts. This looks at every account and finds the average age of those accounts.

It doesn’t matter if you actually use the accounts — as long as they are open and in good standing, they will contribute to your average age of accounts. However, keep in mind that some lenders will close inactive accounts after a certain period of time. To keep unused accounts open, it’s a good idea to use them for a small purchase once per year or so.

Keep your old accounts open, even if you don’t actively use them. New accounts will also lower your average age, so only open new credit accounts when it’s necessary. 

New credit refers to recently opened credit accounts. It makes up 10% of your credit score. 

New accounts are not necessarily a bad thing when it comes to your credit score — but too many recently opened accounts can signal to lenders that you might be a risky borrower. This factor also looks at recent credit inquiries on your file. An inquiry occurs when you apply for a loan or credit card.

Credit inquiries can either be “soft” or “hard”. A soft pull does not affect your credit, but a hard pull does. When applying for new credit, the lender will typically conduct a hard pull, while soft pulls are typically used when checking if you’re preapproved for a loan. 

Only open new credit accounts when it’s necessary. You may also wish to consider spreading out new applications over a period of time. The exception to this rule is if you are applying for a mortgage and you’re hoping to shop around for rates. In this case, hard pulls made within a 14-day period are considered as only one inquiry. 

However, the inquiries must be for the same type of credit. If you check rates from three different mortgage providers in a 14-day period, those inquiries will have no more impact than a single hard inquiry. But if you apply for a mortgage, credit card, and personal loan in the same window, each inquiry will be considered separate and will affect your score. 

Credit mix refers to the variety of credit accounts that you have open. It makes up 10% of your credit score. 

Lenders prefer to see borrowers who have a proven track record of responsibly using multiple forms of debt. The different types of accounts that are reported to the credit bureaus include examples such as:

Using a variety of credit types can improve this factor. However, it’s best to only open a new account if you actually need it. Remember, this factor only makes up 10% of your credit score. 

Why It’s Important to Understand Credit Score Factors

Understanding what makes up your credit score can help you take active steps toward improving your own credit. With this knowledge in mind, you can make an informed decision on how to boost your score. 

For instance, if you have too much debt, your “amounts owed” factor may be hurting your score. In this case, paying down debt should be your top priority. Paying off your revolving balances, paying on time, and paying more than the minimum are all great habits to help improve your credit score over time. 

The PayOff Loan™ from Happy Money makes it simpler to pay off credit card debt using a lower-interest personal loan. It can help you consolidate your debt into a single monthly payment, save money on interest, and potentially boost your credit score.  

Credit scores are based on your payment history, amounts owed, length of credit history, new credit, and credit mix. Learn more here.

What Makes Up Your Credit Score? | Happy Money

Personal loans are versatile loan products that can be used for a variety of reasons, from funding a major purchase to paying down high-interest debt. There are a few different types of personal loans, with two broad categories to consider: Unsecured personal loans and secured personal loans. But what do these terms really mean, and which might be the best fit for your needs? 

A personal loan is a type of installment loan that can be used for any purpose. With a personal loan, you borrow a fixed amount of money upfront, then pay it off over time with consistent monthly payments. 

What you use the loan for is your own choice. You might use it for a home renovation, a major purchase, or even to pay off other types of debt. 

Certain types of personal loans may be designed for specific purposes. For instance, many personal loans are offered as a way to pay off high-interest debt. Others are general purpose loans and can be used for anything. 

To get a personal loan, you must apply for one through a bank or lender. The lender will access your credit report to determine your creditworthiness. They use this data to decide if they’re willing to lend you money — and if so, what interest rate they will charge you. 

Another factor that influences interest rates is whether or not the loan is secured or unsecured. Most are unsecured, but some lenders offer secured loans — potentially at lower interest rates. 

A secured personal loan is a loan that is backed by an asset that you own. You provide collateral — like a vehicle or an investment account (including any eligible stocks, bonds, exchange-traded funds (ETFs), or mutual funds that you may have in your portfolio) — when you get the loan. If you are unable to repay the loan, the lender can legally take possession of the collateral that you used. 

Secured personal loans are not very common. However, some lenders offer them as a way to reduce the risk of lending money — and to be able to offer loans at lower interest rates. 

May be offered at a lower interest rate compared to unsecured loans

Requires ownership of a substantial asset (vehicle, investments, real estate, etc.)

If you default on the loan, the lender can take possession of the collateral you used

An unsecured personal loan is a standard personal loan that is not “secured” by any asset. 

When you apply for an unsecured loan, your approval odds are based only on your credit history. The lender will access your credit report and determine how likely you are to be able to repay the loan, based on your credit history. 

If you end up being unable to repay an unsecured loan, the lender can send your debt to collections, assess penalty fees, and more — but they can’t seize control of your assets. 

No risk of losing an asset if you can’t repay the loan

Widely available from a variety of banks and lenders  

Disadvantages to Unsecured Personal Loans

Harder to get approved for (requires a higher credit rating)

Unsecured vs. Secured Personal Loans Compared

If you’re trying to decide between a secured and an unsecured loan, it’s wise to first consider these factors: 

Availability: In general, unsecured loans are more widely available from standard banks, credit unions, and online lenders. Secured loans are less common.

Collateral requirements: A secured loan requires that you have a valuable asset to put up as collateral. This could be a vehicle, equity in your home, or the value of your investment accounts. Unsecured loans do not require any sort of collateral. 

Interest rates: Generally speaking, interest rates on secured loans will be lower than unsecured loans. This is because secured loans are less risky for the lender, so they are often willing to loan money at a lower interest rate. 

Risk: To the borrower, the risk of a secured loan can be considered higher than with an unsecured loan. If you fail to repay a secured loan, you can damage your credit and lose the asset you put up as collateral. If you fail to repay an unsecured loan, your credit will be damaged — but you won’t lose your assets. 

Ultimately, there’s no clear “best” type of personal loan. It all depends on your specific needs, credit rating, and other factors. 

In any case, it pays to shop around. If you have good credit, it’s a good idea to check to see if you can prequalify for an unsecured personal loan, which will allow you to see your estimated interest rate and monthly payments without affecting your credit. 

A Loan to Help You Reclaim Control of Your Finances

Secured loans are backed by an asset you own, while unsecured loans are solely based on your personal credit. The majority of personal loans are unsecured. 

If you’re taking out a personal loan to pay off credit card debt, consider The PayOff Loan™ from Happy Money. 

The PayOff Loan is an unsecured personal loan that’s designed to help borrowers consolidate high-interest credit card debt into a lower-interest personal loan. It can help qualified borrowers save money on interest, simplify monthly payments, and boost their credit score.

For more insights on personal finance, credit, and debt, check out the Happy Money blog.  

Personal loans can be “secured” or “unsecured”. But what do these terms mean, and which is a better option for you? Learn more here.

Unsecured vs. Secured Personal Loan

What Is an Unsecured vs. Secured Personal Loan?

Your credit score is one of the most important parts of your personal finances. Your score will affect everything from your ability to get a credit card to the interest rates you pay on loans. 

Many factors go into your credit score, but one that’s often overlooked is called “credit mix”. This refers to the variety of types of credit products you use, and it makes up 10% of your credit score. Here’s everything you need to know about types of debt, credit mix, and how to optimize this aspect of your credit rating. 

Credit mix is a credit scoring factor that refers to the types of debt and credit products that you have. The types of credit you have might include credit cards, installment loans, and retail accounts, which we’ll touch on more below. 

Credit mix is important because lenders like to see that you have been responsible with managing a variety of credit types. In general, if you have a wider variety of debt types in your credit report, your score will be higher. If you have only one type of credit, your score may be lower. 

How Much Does Credit Mix Affect Your Credit Score? 

In the FICO credit scoring model, credit mix makes up 10% of your credit score. The credit scoring factors are:

As you can see, credit mix has the smallest overall effect on your score out of any of the factors. Your record of on-time payments and the amounts you owe have a much larger impact on your score.

With that said, credit mix absolutely still affects your score. It may not be the first priority to optimize, but it should definitely be on your radar if you’re looking to improve your credit rating. 

Credit mix is a measure of the types of credit that you are using or have used in the past. To better understand credit mix, we must first understand the different types of credit that are available. There are two broad categories of debt: Revolving credit and installment credit. Here’s what you need to know. 

Revolving credit is a flexible form of credit that allows you to borrow as needed, and repay as needed. It includes credit cards and certain types of lines of credit. 

Instead of a large upfront loan with consistent monthly payments, revolving credit gives you the option to borrow and repay on a recurring basis. In other words, the amount you borrow and repay is flexible, and continually adjusts based on your spending and repayment activity. 

Revolving credit is also flexible in how much you pay. Often there will be a small minimum payment due, with the flexibility to make larger payments to reduce your debt. 

Credit cards allow you to make purchases at stores and online using borrowed money. When you open a credit card, you’ll be given a maximum credit limit — $3,000, for example. This means that you can borrow up to $3,000 using the card. 

If you put $1,000 in charges on the card, your credit limit will decrease to $2,000. If you then make a $500 payment, your credit limit will increase to $2,500. 

On a credit card, a minimum monthly payment will always be required, but it’s generally a very low amount — often only 1 to 2% of your current balance. You can always pay more (which will help you save money on interest), but you aren’t required to pay any more than the minimum payment. 

A line of credit functions similarly to a credit card. You are given a maximum credit limit, and you can borrow up to that limit as needed.

Some lines of credit are secured, meaning that they are backed by the value of an asset you own — like your home. Others are unsecured, meaning that they are not backed by an asset. 

Installment credit includes most standard loans. You borrow a set amount and then make monthly repayments in the same amount every month for the length of the loan. 

You may be able to make extra payments to pay the debt off quicker, but a significant monthly payment will always be needed. You also cannot typically borrow more without applying for a separate loan (unlike revolving credit, where you can continually borrow more as you repay). 

Mortgages are home loans that you borrow to purchase real estate. These are generally very large loans in the hundreds of thousands of dollars, with monthly payments in the thousands of dollars. 

Auto loans are fixed installment loans used to purchase vehicles. They are secured by the value of your vehicle, which means the bank can take ownership of your car if you default on the loan. 

Student loans are taken out to help pay for higher education costs. Most student loans are federal loans, which are funded by the federal government and applied for via the Free Application for Federal Student Aid (FAFSA).  Private loans, on the other hand, work a bit differently and are separate from federal loans. Student loans are not secured by any physical asset. 

Personal loans are generic loans that can be used for a variety of purposes. Borrowers can take out a fixed amount to fund a major purchase, pay down other high-interest debt, or cover a shortfall in their personal budget. Personal loans are generally not secured. 

Improving Your Credit Mix Can Improve Your Credit Score — But It’s Not the Only Way

If you have only one or two types of debt on your credit report, that could be holding your score back a bit. Improving your credit mix may help boost your credit score, but there are many ways to improve your credit without taking on additional debt. 

Credit mix is a factor that contributes to your credit score. It measures the different types of debt you have, such as revolving credit or installment loans.

Articles