Your credit score is calculated by assessing various factors in the five predictive categories of your credit history:1
1. Payment history: Highly influential
A strong credit history of on-time payments increases your credit score. When debts are defaulted on or settled, your credit score will likely go down. Late payments of 30 days or more also are seen as negative payments on your credit report. To keep this category in good standing, consider automating your monthly minimum payments to ensure you aren’t affected by any late payments.
2. Amounts owed: Highly influential
Sometimes referred to as your credit utilization ratio, total credit usage looks at your current balances (what you owe) and your current credit limits (how much your credit companies and lenders allow you to borrow). The lower the percent of your available revolving credit being used the better for your scores. Individuals with the highest credit scores tend to keep their credit utilization rates below about 10%.1 To help maintain a healthy credit score, you can pay down debt, limit new expenses, and request increases to your current credit limits.
3. Length of credit history: Important, but Less influential
Looking at the average age of your credit accounts helps lenders understand how long you have been able to manage credit in a healthy way. The longer you keep your accounts in good standing, the higher your credit score will be.
4. Credit mix: Important, but Less influential
A mix of different types of credit can have a positive impact on your credit score. Types of credit considered in reports include installment debts, like student loans, mortgage, or car loans, and revolving accounts, like credit cards and other lines of credit.
5. New credit: Important, but Less influential
When you apply for a new loan or a new line of credit, you are signaling to lenders a greater need for credit, which can be seen as risky when you are applying for multiple new accounts. While a single hard inquiry won’t hurt your credit score too much, a series of applications tell lenders that you may be in a risky point in your credit journey.