What Factors Make Up Your Credit Score and How Are They Weighed?

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Maintaining a high credit score comes with a variety of benefits, from cheaper financing to better credit card offers and more. It isn’t easy to understand exactly what determines that three-digit number that can have such a big influence over our lives, though.

The good news is it doesn’t have to be so complicated. While there are several factors that can cause your score to move up or down, the majority of your score comes down to just two areas of focus.

This doesn’t mean the other factors aren’t important, but it does mean that focusing your efforts on the most crucial areas will have the biggest impact. Once you have your credit score in a better place, you can then fine-tune it, so to speak.

The other thing to keep in mind is there are no easy fixes when it comes to your credit score. If it is currently “fair” or “poor,” it will take some time to build it up. But with the right steps, you can slowly increase your score over time.

Credit Score Factors

You would be forgiven for thinking credit scores are complicated or even elusive; fluctuations in your score can seem to affirm that. And while we can’t always see everything that is happening behind the scenes with our credit reports, breaking down the credit score factors by percentage can go a long way in providing clarity. Take a look.

Payment History (35%)

Payment history is the single most important factor in determining your credit score — this one factor alone accounts for just over one-third of your entire score. Simply put, payment history is a snapshot of your payments to creditors, which shows how likely you are to make your payments. Late and missed payments will negatively affect your score; too many of these can significantly hurt your credit.

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Amount Owed (30%)

The second-largest factor in determining your credit score is the amount owed. This factor includes things like credit utilization, how many accounts have balances, and how much you owe on all accounts. Credit utilization is the ratio of the amount you owe against your total credit limit. This factor takes all of your lines of credit into account, not just a single credit card. For instance, if you have a total balance of $2,000 across all of your credit cards and a total limit of $10,000, your utilization is 20%.

If your utilization is too high, you may be at risk of default, which can substantially lower your credit score. While there is no exact threshold here, the rule of thumb is to keep your credit utilization below 30%.

Credit History Length (15%)

Credit history length is just as it sounds: how long your credit cards and other lines of credit have been open. Lenders use the average age of all your lines of credit to determine this factor. Hence, opening new credit cards can reduce your credit history length, lowering your score somewhat.

New Credit (10%)

New credit is a smaller factor in your credit score, but it still matters. Anytime you open a new credit card, a hard inquiry will be added to your credit report, which will lower your score temporarily. Too many hard inquiries in a short time span can be a red flag to creditors, who may wonder why you are in need of so much credit. This can also lead to denials for new credit cards. However, if you slowly build your credit limit over time, you may be better off in the long run as this allows you to reduce your credit card utilization.

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Credit Mix (10%)

Do you have a mortgage and a few student loans you are paying off as quickly as possible? That may be good for your mental health, but it can be bad for your credit score. Lenders like to see a mix of different types of credit. Even if you have credit cards you use and always make payments on time, your credit score will drop a bit if your credit mix becomes less diverse.

What Each Range Means

There are generally five different credit score ranges: excellent, very good, good, fair and poor. Of course, we can intuitively understand what each range means. But each range has specific implications for your credit score:

  • Excellent: You have a lengthy history of no late payments. With this score, you may have the lowest rates on mortgages and other loans, as well as have the best chances of qualifying for lines of credit.
  • Very good: Your credit history is mostly good, but you may have a late payment here and there. Your interest rates will be good, but perhaps not the best, and you may not qualify for some forms of financing.
  • Good: With a “good” score, you are slightly above average. You may qualify for financing with good rates, but likely not the best. Plus, you are more likely to be denied.
  • Fair: A fair score means you may have some missed payments, but likely no major delinquencies. You may still qualify for credit, but expect rates to be less than stellar.
  • Poor: A “poor” credit score can be indicative of many missed payments, bankruptcy or default. You may qualify for a few types of credit, such as secured credit and perhaps payday loans, but rates are likely to be quite high.

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