A credit score is more than just a number- it is a snapshot of your financial health, shaped by five categories: payment history, amounts owed, length of credit history, pursuit of new credit, and credit mix.  Understanding how these factors work is important for gaining a clear picture of how credit scores are calculated and how they impact your overall financial standing. 

Payment History (35%) 

When a lender reviews your credit score, the first thing they consider is your payment history.   Making up 35% of your credit score, the payment history is the most important factor used to determine the amount of risk a lender takes when extending credit. Payment history includes factors such as: 

• Payment information from various accounts: credit cards, retain accounts, installment loans, finance company accounts 
• Information from public records or collections: bankruptcies, foreclosures, wage attachments, liens, and judgements 
• Specifics about late or missed payments and the number of accounts that are up to date 

Amounts Owed (30%) 

Lenders also consider the total amount you owe to assess how well you manage your debts. While having balances on your account does not automatically label you as “high-risk,” using a large portion of the credit you have available will raise concerns about your risk of default. When evaluating your amount owed, lenders review:

• The total amount you owe across all accounts 
• The number of accounts that have an outstanding balance
• The percentage of your total credit limit being used at the time

Length of Credit History (15%)

The length of your credit history also helps lenders understand your experience in managing credit over time.  Although longer credit history will boost your credit score, a long credit history is not required to allow you to achieve a good credit score. When evaluating the length of your credit history, lenders consider: 

• The average age of all of your accounts 
• The age of your newest and oldest account 
• How long accounts have been active 
• How recently accounts have been used 

Credit Mix (10%)

Your credit mix accounts for 10% of your score and refers to the variety of credit types you maintain.  Different types of credit include credit cards, retail accounts, mortgages, installment loans such as car loans), and finance company accounts. While you do not need to have one of every type, a diverse mix can be unofficial. Factors considered in your credit mix are: 

• The different types of accounts you maintain
• Your experience with different types of credit account such as revolving credit and installment loans 

New Credit (10%) 

New credit, which accounts for 10% of your score, impacts how lenders will view your credit management behavior.  Opening several credit accounts in a short period of time can signal to a lender that you are higher risk, taking out multiple lines of credit in a brief period of time.  This is especially true if you have a short credit history. Factors taken into account include: 

• The number of new accounts you have opened recently
• How long it has been since you have opened a new account 
• The frequency of recent credit inquiries by creditors or applications for credit
• Length of time since any credit report inquiries by lenders 

Conclusion 

By knowing what goes into your credit score, you can better understand how your financial habits impact your credit. Understanding these factors can take the mystery and stress out of managing your credit and allow you to make financial decision with confidence and maintain a healthy credit profile.