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The 5 Elements of Your Credit Score

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Understanding how your credit behavior impacts your credit score will help you explore ways to keep your rating strong.Your credit score plays an integral role in your finances, influencing everything from your mortgage rates to your ability to secure a job or apartment. Given the weight your three-digit number carries, it’s important to know which factors are used to calculate your score—and which actions you can take to keep your credit rating healthy.

There are five primary elements that are considered in credit scoring models, and each component is essential to maintaining a strong rating.

Payment History
Your payment history makes up the largest percentage of your credit score at 35 percent. Your lenders and credit issuers report your payments—including on-time, late or missed balances—to the credit bureaus, and this information influences your credit score. While on-time payments will result in a positive rating, negative payment information like late payments, bankruptcy, foreclosure, liens and judgments will drag your credit score down. Payment history generally ranges back seven to 10 years.

Credit Utilization Ratio
Your credit utilization ratio takes into account your revolving credit balances versus the available credit in your name; this figure makes up 30 percent of your credit score. While lenders like to see that you are using credit, high balances will negatively impact your score. This means that maxing out your credit cards, even if you pay them off in full at the end of each billing cycle, may cause your score to drop. A credit utilization ratio of 30 percent or less is preferable.

Length of Credit History
The amount of time you have kept your oldest account open amounts to 15 percent of your score. The longer you keep your accounts open, the higher your credit score will be.

Different Types Of Credit
If you hold various types of credit accounts—from mortgages to auto loans to credit cards—your credit score is likely to be higher than it would if you only held a credit card in your name. The mixture of credit in your name makes up 10 percent of your score.

Hard Inquiries
Each time you apply for a line of credit, lenders view your credit history to gauge your creditworthiness. This review, known as a hard inquiry, is listed on your credit report and accounts for the remaining 10 percent of your credit score calculation. Submitting multiple applications for credit signifies to lenders that you may be reliant on or desperate for credit, and therefore a credit risk. To keep your credit score healthy, keep hard inquiries to a minimum.

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