What makes a credit score?


Payment History

The bulk of your score is made up of your payment history. Have you always paid your credit card on time, without carrying a balance? Good. 35% of your entire credit score is determined by how timely you are on paying your bills. Whether it is credit card payments, auto loan bills, or even mortgage payments, if you're making payments on time, your credit score will strengthen.

Amounts owed

The second biggest chunk, weighing in at 30% is your utilization. Credit utilization refers to how much of your available credit you are using. If you have over $100k of credit available, but are only using $10k, you will have a utilization of 10%. The lower the utilization the better because if you have high utilization, you are relying on credit to keep you afloat too much. Financial institutions are usually wary of customers who tend to utilize too much of their available credit.

Length of Credit History

If you are just turning 18, you probably do not have any credit to report. That is good. But now, you must start working on building up your credit history. The age of your open accounts determines 15% of your credit score. The longer you have a credit card open, or the longer you have a mortgage under your name (with TIMELY payments), the better your credit history.

Inquiries / New Credit

Opening a large amount of credit cards in a short period will not help your score. Just because you are pre-approved with 0% APR for 6 months does not mean you should go ahead and apply for that card. New credit or opening new loans in a short period of time has a negative impact on your credit history because companies will issue inquiries on your credit report to determine if you are eligible to receive credit. It also determines 10% of your total history, so stay away from opening 4-5 cards too quick just because you started working.

Types of Credit Used

So, you have a couple credit cards open. You are making timely payments, but your credit score will not budge past the 750-775 mark. Why? Because your credit is not diversified. You need a wide diversity of credit to make your credit score rise. That wide diversity includes auto loans, mortgage loans, utility payments, and credit cards.