There are five factors that go into credit scores. While some websites may have one more factor or one less, for the most part, these are the factors that affect your score. The percentages given are based on what FICO uses, which is one of the most commonly used credit scores.
Let’s start with credit history, which accounts for about 15 percent of your score. Although this is not the largest factor, percentage-wise, it is very important that you start building credit when you turn 18 years old. This is 15 percent that anyone can qualify for just by getting a starter credit card.
Next is payment history. Payment history accounts for a whopping 35 percent of your score. This means paying your bills on time every month. It’s as easy as it sounds. Every month when your statement comes out, you pay at least the minimum. Now 35 percent is the largest factor that is affecting your score, so pay your bills on time and you will have an excellent payment history, and it’ll be a major boost to your credit score.
The third factor is credit utilization, which is 30 percent of your score. Credit utilization is something you can constantly work on because it has to do with your total balance vs your total credit limit. Pay off all of your cards and you will have the best utilization this is zero percent. If you need to carry a balance for whatever reason, this could hurt your score gravely if you do not work on increasing your limits. Although for some, having a high credit limit could be dangerous, but it is a way to help not have credit utilization kill your credit score. This is because when you hold a balance on a card, the higher limit you have on all your cards lowers your percentage of credit utilization. Not everyone is comfortable having a high credit limit though, so this method isn’t for everyone.
The fourth factor is new credit. This factor only accounts for 10 percent of your credit score. Although it is a small factor, it is still a factor and can make a difference in your overall score. This factor relates to new cards that you open. When you open a new card, that’s a hit to your score. In the long run, it may help other factors, but in the short term it will lower your score slightly every time a new card is opened. A new credit card also slightly hurts your credit history factor because this factor takes the averages of the length all your accounts have been opened.
Lastly, there is credit mix, which accounts for the last 10% of your score. This is a broad view of your credit. To get a perfect mark for your credit mix, you should have credit cards, car payment, and rent or own a home. Those are the three main groups of credit, and it shows that you aren’t just collecting credit cards and you are a trusted borrower on all fronts.
All five of these factors affect your credit score. You will build your score over many years and you will get perfect credit with hard work. Hopefully, you can figure out how to work on these factors to start improving your credit score today. And remember, it begins with opening that first starter card.
I love this breakdown. When I first started building my credit as a freshmen in undergrad, I wish someone would have told me how credit works and how not to ruin it at a young age because you’ll need it for almost everything as an adult. A lot of people don’t know to keep your credit utilization at 30%. Going over that 30% even a little, can drop a few points off of your score. Now that I know how credit works, unfortunately the hard way, I can pass information like this on to those who have no idea how credit works. Great breakdown!