From buying a home to applying for student loans, your credit score can impact whether you can move forward on
your financial journey. If you are trying to repair a bad score or maintain a good one, it’s important to know
what factors go into compiling the score.
More than 27 million credit scores are calculated each day, based primarily on the following factors:
Payment history
This is by far the most important factor in calculating a credit score and accounts for about 35 percent of the
overall score. The best indicator of how you’ll handle a new loan or credit card is your behavior with past
accounts.
Missed payments and late payments can drive your score down quickly. The best way to improve or maintain a good
score is to make consistent, on-time payments on all existing loans and credit cards.
Credit utilization
After payment history, credit utilization, or how much of your available credit you are using, is the next most
important factor in determining a credit score. It accounts for about 30 percent of your credit score. In short,
just because you have a high credit limit does not mean you should max out a credit card — even if you pay the
bill in full each month.
Credit bureaus like to see an overall utilization rate of less than 10 percent, and no more than 30 percent. Of
course, things happen that might constitute a higher utilization from time to time, but this should be the
exception and not the rule.
Credit history
Credit history includes the age of your oldest and newest credit accounts, the average age of your accounts, and
whether you’ve used the accounts recently. You can’t change time, but you can control this credit score factor
by applying for and opening new credit accounts only as you need them.
It might seem tempting to open a new credit card to take advantage of a promotion or discount, but is the
benefit really worth the ding to your credit score? Credit history accounts for about 15 percent of your overall
credit score.
Credit inquiries and credit mix
Somewhat vaguer than the other factors, this one accounts for about 10 percent of your credit score. Credit
reporting bureaus are looking for evidence that you can be responsible with all types of credit, including
loans, mortgages, and credit cards.
Your credit score can also go down every time a bank or credit card company checks your credit before issuing a
new account. This is unavoidable if you want to open a new account, but try to keep the inquiries to a minimum,
especially on credit cards.
