Your credit score is used in many aspects of your life. Lenders and creditors often run your credit report and use your score to determine what kind of loans or credit to offer you. Additionally, some employers request to see your credit score as part of their hiring process. Your credit score is determined from your individual credit report, and there are five categories taken into consideration.

The 5 Areas that Impact Your Credit Score

1. Payment history is the most heavily-weighted category, accounting for 35% of your credit score. Lenders want to know, first and foremost, whether an individual has paid past credit accounts on time. Bankruptcies, foreclosures, and liens will negatively affect your payment history.
2. Amounts owed measures how much an individual owes relative to how much credit they have available, and accounts for 30% of your credit score. Owing money is not necessarily a bad thing, but when a high percentage of credit has been used, it can indicate to the lender that the individual is close to being overextended.
3. Length of credit history accounts for 15% of your credit score — the longer your credit history, the better your score. This category considers both how long credit accounts have been established and how long it has been since you have used certain accounts.
4. New credit measures how many new accounts you have and accounts for 10% of your credit score. Opening several accounts in a short period of time may lower your credit score. Note: shopping around for mortgage or auto loans from different lenders within a short period of time is typically treated as a single credit inquiry.
5. Credit mix assesses the various types of credit you have such as credit cards, retail accounts, installment loans, and mortgages. Your credit mix accounts for 10% of your credit score, and it is generally better to have a mix of these types of credit accounts. Note: credit cards with good payment histories are not bad, but they should be used responsibly. Closing an account does not make the history go away.

Based on the categories and weightings listed above, making payments on time — every time — will go a long way toward improving your credit score. You should also use a low percentage of total credit available.

We recommend that you check your credit report at least once a year to ensure that no errors appear on your credit history. You can access a free credit report once per year from each of the three nationwide consumer credit reporting agencies: Equifax, Experian, and TransUnion.

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