Credit mix, an often overlooked aspect of establishing a robust credit profile, can have a significant impact on the ebb and flow of one's credit score. Yahoo Finance Personal Finance Reporter Kendall Little breaks down the intricacies, explaining what credit mix entails and how it influences your overall credit score.

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Editor's note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: Let's talk credit. We all need some. But how much is enough? A new report from Open Lending and TransUnion found that 30% of Millennials and Gen Zers are more likely to improve their credit scores within two years compared to just 22% of older generation.

Now, that's good news. Building credit is necessary for taking out loans, making big purchases, or receiving more favorable interest and insurance rates as well. There are a few factors that affect your credit. And one important one is your credit mix and diversifying your financial profile.

What's that you ask? Well, let's bring in "Yahoo Finance's" Kendall Little to break it down for us. Hey, Kendall.

KENDALL LITTLE: Hey, Brad. Thanks. So when we're talking about credit mix, we're really talking about the mix of different accounts that appear on your credit report. So this can mean installment loans, such as a mortgage, a student loan, an auto loan.

But it can also mean revolving credit. So your credit cards, if you have a home equity line of credit. And this mix is really part of the formula that makes up your overall credit score. It accounts for about 10% of your score under FICO scoring system, which means it's not the most influential factor.

It's still really important to pay your bills on time every month, making sure that you're keeping that positive payment history, and to make sure that you're not overextending yourself on the amount that you borrow and what you owe.

But credit mix is still a really important part of that overall picture that makes up your credit score. And it can really help you maintain a good score over the long term. And that's because this credit mix helps you show lenders that you can responsibly manage your different loans and different types of credit. You can borrow money for different purposes and pay it back.

And so when you go to apply for those new loans, and those new lines of credit, then you look less risky to those potential future lenders.

BRAD SMITH: Kendall, thank you so much for setting this conversation up. And it's very valuable information there.