Your credit score is made up of 5 key factors:
- Payment History (35%): Whether you pay bills on time. Late payments can stay on your report for 7 years.
- Total Debt and Credit Usage (30%): How much of your credit limit you’re using. Keep utilization below 30%, ideally under 10%.
- Length of Credit History (15%): The age of your oldest account and the average age of all accounts.
- Types of Credit Accounts (10%): A mix of credit cards, loans, and other accounts shows responsible handling of different credit types.
- Recent Credit Activity (10%): New credit applications and hard inquiries. Space out applications to avoid score dips.
Quick Tip: Focus on paying bills on time and keeping credit utilization low – these two factors make up 65% of your score. Responsible habits over time lead to better financial opportunities.
5 Key Factors That Make Up Your FICO Score
1. Payment History (35% of Your Score)
Payment history makes up 35% of your credit score, making it the most important factor. It shows lenders how consistently you pay your bills, including credit cards, loans, mortgages, and any negative records like bankruptcies or collections.
Here’s what payment history includes:
- Payments on credit cards and loans
- Mortgage payments
- Other types of credit accounts
- Public records, such as bankruptcies or collections
Missing payments can have a noticeable impact on your score. For example, if your credit score is 736, a single 30-day late payment could bring it down to 685 [2]. The effect of missed payments depends on several factors:
| Factor | Impact on Credit Score |
|---|---|
| Payment Lateness | 30 days late: Moderate impact 60+ days late: Severe impact |
| Frequency | Multiple late payments: Greater negative effect |
| Recency | Recent late payments: Stronger impact Older late payments: Less significant impact |
To keep your payment history in good shape, consider setting up automatic payments to cover at least the minimum amount due. If you’re struggling financially, contact your creditors to discuss hardship programs or payment plans. Keep in mind, negative marks like late payments can stay on your credit report for up to seven years.
Maintaining a solid payment history doesn’t just improve your credit score – it also shows lenders you’re reliable, which can lead to better financial opportunities. Next, we’ll dive into how total debt and credit usage affect your score.
2. Total Debt and Credit Usage (30% of Your Score)
This part of your credit score depends heavily on your credit utilization ratio – the percentage of your available credit you’re currently using across all accounts.
Here’s an example: if your credit card has a $1,000 limit and you carry a $300 balance, your utilization ratio is 30%. Experts recommend keeping this ratio under 30%, but staying below 10% gives the best results.
| Credit Utilization | Effect on Credit Score |
|---|---|
| 0-10% | Most positive |
| 11-30% | Positive |
| 31-50% | Moderate negative |
| Above 50% | Significant negative |
| Above 75% | Severe negative |
This section evaluates several factors:
- Overall utilization: Your average usage across all credit accounts.
- Individual account usage: How much of each credit line you’re using.
- Accounts with balances: Having multiple maxed-out accounts can seriously hurt your score.
Tips To Manage Credit Usage
- Focus on paying down high-interest debt first, and keep balances low across multiple cards to improve your utilization ratio.
- Set up alerts to track balances and ensure you don’t exceed the 30% mark.
For those just starting out – like young adults or college students – credit utilization is especially important. A low-limit credit card with minimal balances is a great way to build credit responsibly. Making multiple payments each month can also help keep your utilization low.
While managing debt is crucial, don’t forget that the length of your credit history also carries weight in determining your score.
3. Length of Credit History (15% of Your Score)
Your credit history length accounts for 15% of your FICO score [1]. This part of your score looks at three important details:
- Age of oldest account: How long your longest-running credit account has been open.
- Average age of accounts: The average age of all your credit accounts combined.
- Age of newest account: How recently you opened your most recent credit account.
These details help lenders assess your experience with credit. A longer track record of managing credit responsibly often signals reliability to potential lenders.
Tips for Strengthening Your Credit History
Here’s how you can make the most of this part of your score:
- Keep old accounts active: Even if you don’t use them often, consider keeping your oldest accounts open by charging small recurring expenses like subscriptions.
- Be cautious with new accounts: Opening too many accounts in a short time can reduce your average account age, which might hurt your score.
- Authorized user option: If someone you trust has a well-managed account, being added as an authorized user can help you establish credit.
While your credit history naturally grows over time, managing accounts wisely can make a big difference. Responsible use of both older and newer accounts not only improves this factor but also positively impacts other parts of your score, like payment history and credit utilization.
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4. Types of Credit Accounts (10% of Your Score)
The variety of your credit accounts contributes 10% to your FICO score. This part of your score helps lenders assess how well you handle different types of debt and financial obligations.
Main Credit Account Categories
Credit accounts are generally divided into two types:
- Revolving Credit: Includes credit cards, store cards, and lines of credit.
- Installment Credit: Covers mortgages, car loans, and student loans.
Having a mix of both types can demonstrate to lenders that you’re capable of managing multiple forms of debt responsibly.
Tips for a Balanced Credit Mix
To make the most of this factor:
- Start with a single credit card and add other types of credit gradually as your financial needs grow.
- Open new accounts only when they serve a specific financial purpose.
- Maintain good standing on your accounts by paying bills on time and avoiding unnecessary closures.
If you’re new to credit, this factor is especially useful when other aspects of your credit history are limited. Young adults and students can explore resources like Young Finances, which offers advice on building a well-rounded credit profile without taking on unnecessary risks.
While having a diverse credit mix is helpful, your recent credit activity also plays a key role in shaping your overall financial health.
5. Recent Credit Activity (10% of Your Score)
How often you apply for credit plays a role in your FICO score. Recent credit activity makes up 10% of your score, focusing on how frequently you apply for and open new accounts.
There are two types of credit inquiries: hard inquiries and soft inquiries. Hard inquiries, like applying for a credit card, can lower your score and stay on your report for two years. On the other hand, soft inquiries, such as checking your own credit score, don’t affect your score at all.
If you’re shopping for loans, FICO groups multiple inquiries made within 14-45 days as a single inquiry. This way, you can compare rates without your score taking multiple hits.
Here are a few tips to keep your credit score in good shape:
- Space out applications: Wait at least six months between applying for new credit.
- Hold off before big loans: Avoid opening new accounts before applying for major loans like a mortgage.
- Check your credit report: Keep an eye out for any inquiries you didn’t authorize.
Hard inquiries affect your score for about 12 months, but their influence fades over time. Maintaining good payment habits on your current accounts helps minimize their impact.
Conclusion
Understanding the five parts of your credit score gives you the tools to make smarter financial choices. To keep your credit score in good shape, focus on these key steps:
- Pay on time and aim to keep your credit utilization under 30% – these two factors make up 65% of your score.
- Keep older credit accounts open to strengthen your credit history.
- Use a mix of credit types wisely.
- Avoid frequent new credit applications to limit hard inquiries.
A strong credit score can save you money through lower mortgage rates, reduced insurance costs, and smaller utility deposits.
Improving your credit takes patience and consistent habits. Steady, responsible management is far more effective than quick fixes. By knowing how each factor affects your score, you can make choices that support your long-term financial goals. Stick to these strategies, and over time, you’ll see progress in both your financial health and credit standing.
FAQs
Here are answers to some common questions about credit score factors:
What are the 5 components of a FICO score?
A FICO score is calculated using five key factors: payment history (35%), total debt (30%), credit history length (15%), credit mix (10%), and new credit (10%). Each of these reflects a different aspect of how you manage your finances and creditworthiness.
What things make up your credit score?
The main elements of a credit score include:
- Payment history (35%): Shows how consistently you pay bills on time.
- Total debt and credit usage (30%): Highlights how well you manage your current debt.
- Credit history length (15%): Reflects your experience with credit over time.
- Credit mix (10%): Evaluates how you handle various types of credit, like loans and credit cards.
- New credit (10%): Considers recent credit applications and accounts.
Which component carries the most weight when calculating your credit score?
Payment history, making up 35% of your score, is the most influential factor. It tells lenders how reliably you make payments. To maintain a strong score, aim to keep your credit utilization under 30% and set up automatic payments to avoid missing due dates.