Your Credit Score: How Does It Work

Your credit score is a physical manifestation of how you’ve handled your borrowed credit over the years. The better you’ve handled your credit, the higher your score will be. On the other hand, if you mismanage your credit, your credit score will suffer for it. A credit score can be influenced by a number of things that can happen with your finances, both good and bad. Many people have no idea what their credit score is made up of or how they can impact it.

What Makes Up Your Credit Score?

Payment History

Your credit score is made up of five major parts, each representing a percentage of the whole. The most influential part of your credit score is your payment history. Payment history accounts for 35% of your credit score and includes your ability to make your payments on time. This also includes public records and rulings that may go against you. In order to keep your credit score healthy, making timely payments is a must.

Available Credit

The next largest factor of your credit score is your available credit, which accounts for 30% of your credit score. The greater the amount of available credit you have, the better off your credit score will be. While it might seem like the ideal thing to do is to never use your credit (or pay it all off every single month) there is an upside towards making regular monthly payments. Using 30% of your overall available credit will keep you in a favorable area for your credit. Once you begin to go over, however, you may see your credit begin to suffer.

Credit Age

Among the lesser percentages that influence your credit score is your credit age. The average age of your overall credit accounts for just 15% of your credit score. While this is can cause your credit score to sway by a few points here and there, it’s also harder to manage as opening up a new line of credit can instantly cut your average age down by a lot. The key to having a good credit age is to try to keep your oldest lines of credit open. The older your credit age, the better it will look on your credit score.

Types of Credit Used

Ten percent of your credit score is determined by the types of credit used. Having a wide variety of credit can have a positive impact on your credit score. This is also impacted through constant vigilance throughout your credit life. Having credit cards, loans, and other types of credit can help to keep that percentage of your credit score positive.

New Credit

Finally, another 10% of your credit score is your new credit. This can include the number of new accounts opens and the amount of inquiries made to open new accounts. Generally, the more inquiries made in a set period of time, the worse it will look for your credit score. Keeping your credit inquiries minimal can help to improve this aspect of your credit.

While there are many things that can change a credit score, the way in which your credit score will be affected by these actions is not uniform. Even though these percentages exist for how your credit score is made up, it is still unclear as to how points are added or taken away. Staying aware of how your credit score changes (and what brings about these changes) can help you better understand your score and how your actions affect it.