The Five Things That Make up Your Credit Score

Ever wonder how your credit score came to be? These five things make up your score and improving them will raise it.

Written by Caish Echols AFC®, CFP® / August 3, 2022

Quick Bites

  • Whether or not you pay your debt on time is the #1 thing that affects your credit score.
  • Also, don’t carry more than 25% of your limit on your card and always say yes to credit line increase offers.
  • Your credit age matters: Older is better.

Credit scores are a mystery. The exact formulas are closely-guarded secrets, but there are five different things we do know that they look at to get to your score. Some of them matter more than others. Let’s hop in and demystify your score.

Inside this article

  1. Payment history
  2. Amounts owed
  3. New credit
  4. Types of credit

Payment history

Your payment history makes up 35% of your total score.[2] This is the biggest driver of your credit score. This means that whether or not you pay your debts on time really impacts you. Making your payments on time is the number one thing you can do to improve your credit score. If your payments are late, they are really going to bring your score down.

Best Money Moves in Your 30s

Best Money Moves in Your 30s

You’re hitting your stride in your career, so it’s a great time to set yourself up for success when it comes to your finances. Here’s how from CFP who’s been there.

Find out more

To avoid having a late payment negatively affect your credit score, set up auto-pay on your cards and accounts.

If you ever lose your job, or have a time where you can’t make the minimum payment, immediately call your lender and see if they can help you work out a payment plan so that you can at least pay something toward your debt to avoid the late mark on your report.

Amounts owed

The total amount you owe on your debts makes up 30% of your total credit score.[2] It’s another big mover. The ‘amount you owe’ applies mainly when we’re talking about ‘revolving credit,’ aka credit cards.

When calculating your credit score, they look at your utilization ratio with revolving credit. This ratio tells how much of the available credit you’re using. The higher your utilization ratio, the riskier you seem to lenders. You want to keep yours below 25% to avoid it negatively affecting your credit score.

So how does this work in the real world? If you are spending on a credit card, you should try to pay off the entire balance every month because it saves on interest. But, if for whatever reason you’re not able to pay the full balance, you want to make sure you never carry over more than 25% of the balance.

For example, let's say you have a credit card with a $10,000 max. If you spend $4,000 on the card, you’ll want to pay off at least $1,500 or more before the deadline so that the amount that gets carried over on the card is $2,500 (25%) or less.

If you want to know where your utilization ratios are at, I like to use Copilot (a great budgeting app) because it automatically calculates your ratios on each of your cards for you once you link them and keeps the ratios updated daily.

Also, if your bank ever offers to increase your credit limit, always say yes! This is a chance to increase the amount of credit available to you, lowering your utilization ratio even more.

New credit

This is one of the smaller categories, making up only 10% of your overall score.[2] Depending on how recently you’ve applied for new credit you may see an increase or decrease to your score.

Unfortunately, it’s not cut and dry like “new credit helps your score” because when you get new credit, it also affects other areas of your credit score – like type of credit, length of credit history, and amounts owed.[3]

How Does Your Net Worth Compare to People Your Age?

How Does Your Net Worth Compare to People Your Age?

Saving is not a competition, but if you’re wondering where you stand, here’s the average net worth by age in the U.S. Plus: Tips on increasing your net worth.

Find out more

However, there are a few general rules you can follow to keep yourself in check:

  • Don’t apply for too many things at once, i.e., if you’re planning to take out a mortgage soon, don’t take out a car loan in the same month.

  • Wait at least 3 months between applying for credit cards

  • When you want to shop rates on a car loan or mortgage, try to do it all within a set time frame, like a week rather than gradually over the course of a few months.

New credit isn’t bad, but it can negatively impact you if you’re not careful in the way you open new lines of credit.

Types of credit

This also makes up 10% of your score.[2] There are two kinds of credit–revolving and installment. Revolving credit revolves, like credit cards. Installment credit slowly goes away over time as you pay if off, like a mortgage.

When your score is calculated, they look at whether or not you have a mix of both types of credit. By having different types, it gives lenders an even broader view as to how you manage your credit. Having both revolving and installment credit is generally a positive thing for your score. But, don’t stress too much. Since it’s one of the lower credit score drivers, you can still have a good score even if you only have one type of credit.

Article Sources
  1. “What does credit mix mean?”
  2. “What's in my FICO® Scores?”
  3. “What is new credit?”

About the Author

Caish Echols

Caish Echols AFC®, CFP®

Caish has worked in the financial planning industry for over 5 years, including working for one of the pioneer financial planners who brought fee-only financial advice to Millennials. She loves making the complexities of finance simple to understand and helping people follow their own paths.

Full bio

Related Content