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What Makes Up Your Credit Score?

Your credit score is a tool that lenders use to measure the risk of doing business with you. Higher credit scores translate to lower risk for the lender, which generally means more savings for you — not to mention an easier time qualifying for the financing you need.

There are actually hundreds of different credit scores that are commercially available, and the idea that you have just one score or even only three scores is a myth. The good news is that each of those credit scores are made up from the same information that appears on your credit reports.

Effectively tracking hundreds of different credit scores would be nearly impossible. Yet if you understand the components from your credit reports that make up your credit scores, managing your credit scores becomes much easier.

Here are a few of the most influential factors that shape your credit scores.

Payment History
Your previous track record with managing debt plays an important role in your credit scores. FICO credit scores, the brand most commonly used by lenders, are designed to base 35% of your scores upon payment history information from your credit reports. Payment history is the most influential category considered in VantageScore’s credit scoring models as well.

When it comes to payment history, credit scoring models look for the presence or lack of negative information. The presence of negative information on your reports (e.g. late payments, collection accounts, past due balances, etc.) will result in a lesser number of credit score points awarded. The lack of negative information, on the other hand, could mean more points awarded (and higher scores).

Amounts Owed
Although payment history matters, almost two-thirds of your credit scores have nothing to do with the timeliness of your payments. A whopping 30% of your FICO scores and a significant portion of your VantageScores are calculated based upon the amounts you owe.

Revolving utilization, or the debt to limit ratio on your credit card accounts, is the most important factor considered within this category. Utilizing a smaller percentage of your available credit card limits is best from a scoring perspective. The number of accounts with balances on your reports also matters — generally, the fewer, the better.

Age of Credit
Your experience managing credit also influences your credit scores. FICO bases 15% of your scores on the length of your credit history. The following factors are taken into account:

  • The average age of accounts on your credit report
  • How long your accounts have been established
  • The age of your oldest account

Mix of Existing Credit and New Credit
Scoring models also look at the mixture of accounts on your credit reports, and how often you apply for new credit. Each of these categories is worth 10% of your FICO scores. Both have a small influence over your VantageScore credit scores as well.

With regard to mix of credit, it can help to have a variety of different account types on your reports. If your credit reports show that you have experience managing revolving accounts (like credit cards), installment accounts (like personal loans), auto loans, and mortgages, your credit scores will likely be positively impacted.

Be cautious about not applying for new credit too often. When a lender pulls your credit, an inquiry is added to your reports to inform you that someone accessed your information. But inquiries have comparatively little influence over your credit scores, and sometimes no influence at all. Any potential damage only lasts for 12 months maximum. If you’re shopping for credit, like a mortgage, multiple inquiries within a short period of time may only be counted once for scoring purposes. So, there’s no need to be afraid to apply for credit whenever you really need it — just don’t make a habit of allowing your reports to be pulled without good reason.