What makes up my credit score?

 In Credit Scores
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Most people know that they have a credit score, but many people do not understand completely what makes up their credit score. Let’s take a dive into your FICO credit score. It is made up of 5 parts – each weighted differently.

Keep in mind: your credit score is not only impacted by credit cards, but also mortgages, auto loans, medical bills, student loans, utilities, among other things.

Payment History (35%)

As the name implies, payment history is a record of when you make credit payments. Each line of credit is on a statement cycle. When looking at your statement you will see a statement opening and closing dates, as well as a payment due date. To ensure a high mark in payment history, make sure you pay your bills on time (or prior to) your payment due date. Also, if possible, strive to pay more than the minimum payment with a goal to pay your bills in full each statement period.

Credit Utilization (30%)

Credit utilization is a calculation of credit that is available to you divided by credit that you have used. As an example, suppose you have 1 credit card that has a $10,000 credit limit and you use $1,000. You have a 10% credit utilization. If you add another credit card with a $10,000 limit and spend the same $1,000, your credit utilization has dropped to 5%. You should aim to keep your credit utilization below 30% to achieve the highest credit score.

Length of Credit History (15%)

Once again, this one is pretty easy to describe. The length of credit history is the amount of time that you have had credit on your credit score. The longer the credit history the better. If you fall into the category of “no credit,” you may have a very tough time being approved for large loans or the best credit cards.

Credit Mix (10%) 

Credit mix is a measure of the different types of credit you have. You probably have heard of diversifying your investments. The same applies to credit. The more diverse your credit is, the better your credit score will be. This means that auto loans, mortgages, credit cards, utilities are all critical to for having a high credit score.

New Credit (10%)

New credit is defined as credit inquiries. It accounts for one of the lowest percentages of your credit score at 10%. There are 2 types of inquiries that occur when you apply for credit: hard inquiries and soft inquiries. Soft inquiries are nothing more than a “note” on your account. An example of a soft inquiry is checking your credit score on a routine basis. This has no impact on your score. While hard inquiries impact your credit score. They are viewed as potential debt since banks do not know at the time how much, if any, credit has been issued to you, so banks like to safeguard against this potential debt. Hard inquiries are typically dropped within a few months.

What does this mean?

As you can see, the bulk of your credit score (65%) is made up of your payment history and your credit utilization. So pay everything off and pay it off on time and be financially responsible!

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