What Makes Up a Credit Score?

Everyone wants to have a good credit score, but there’s more to achieving this goal than paying your bills on time and hoping for the best

It’s important to understand what makes up a credit score. With this knowledge, it’s much easier to adjust your financial approach to improve your chance of boosting your score and avoiding harmful mistakes.

There are five things that make up your credit score:

1. Payment History: 35%

This is the biggest factor, so it deserves a lot of your attention. While you can’t control anything you’ve done wrong in the past, you can set the goal of paying your bills in full and on time in the future.

2. Amounts Owed: 30%

This is all about the percentage of credit being used.

While there’s nothing wrong with using a credit card, you should avoid a situation in which you constantly reach your credit limit. If you get into the habit of doing this, you may be seen as a potential risk. Subsequently, your credit score could take a hit.

Tip: keep your credit card balances as low as possible.

3. Length of Credit History: 15%

Again, this is one of those things you don’t have much control over. For example, if you’re a recent college graduate, you may not have a long credit history.

The best approach is to open new accounts, pay them on time, and leave them open indefinitely.

It takes time to establish a strong credit history, but you’ll eventually get there if you stay the course.

4. Credit Mix: 10%

It’s a good thing to have a nice credit mix, which can include: installment loans (such as a car loan), mortgage, credit cards, and retail accounts.

At 10 percent, it’s not the biggest factor, but it still comes into play.

5. New Credit: 10%

This is a tough one. On one side of things, you want to open new accounts as a means of boosting your score.

On the flipside, if you open too many accounts in a short period of time it can signify additional risk.

Do this: add new accounts when necessary – such as when you need to purchase a car – but don’t open an account just for the sake of doing so.

Are you comfortable with your current credit score? Is there room for improvement? Review these five factors to see if any in particular require your immediate attention.