Man paying with credit card on smart phone at home office

25 Oct

5 Things That Make Up Your Credit Score

5 Things That Make Up Your Credit Score

We’re all trying to improve our credit score, but doing so can often feel like a shot in the dark. The first step to improving that number is understanding the 5 things that make up your credit score.

When you understand what factors go into that number, you can take specific, intentional and strategic steps toward actually raising your credit score with success.

So, what goes into your credit score?

1. Payment History (35%)

The most important factor that goes into your score is your payment history – have you consistently made payments on time? How often were you late in making a payment and by how long?

Lenders are looking to know how trustworthy you are to repay the money they lend.

2. Credit Utilization (30%)

This component factors in how much debt you currently have to your name in relation to your total available credit. Have you maxed out all of your current credit cards? How much of your available credit across all your cards have you used?

Lenders want to see you using your available credit, but they want to see you do so responsibly and with a history of paying it back appropriately.

3. Length of Credit History (15%)

Lenders want to trust you to pay them back, so the longer history you have of doing so, the better! They want to know how long you’ve been using credit and how good you’ve been at both using it and paying it off.

This component only makes up about 15% of your score, which is good for those of us who are opening our first lines of credit.

4. Types of Credit (10%)

This small component of your credit score looks to see if you have a healthy mix of credit types – credit cards, loans, mortgages, student loans, etc. For example, having all credit cards is not considered as healthy of a mix than, say, a couple credit cards, a car loan and a student loan.

This component only makes up a small percentage, so don’t go out of your way to open new accounts for the sake of having more types of credit.

But, lenders do like to know if you are responsible enough to use, manage and pay off multiple types of loans.

5. New Credit (10%)

This factor plays a small but powerful role in determining your credit score. A lender will look to see how many new lines of credit you’ve opened or applied for recently.

Lenders can’t predict the future and don’t know if they can trust you to make payments on time, so they have to look at what you’ve done in the past. If you’ve opened multiple new lines of credit in recent months, they might wonder what you’re planning to do and if you’ll be able to handle all those payments. They’ll consider you a higher-risk borrower.

With these factors in mind, you can begin managing your credit with more responsibility and intention. For questions on credit, lending and what loan options we have available, give one of our loan officers a call today!