How Many Factors Are Taken Into Account When Calculating A Credit Score?

How Many Factors Are Taken Into Account When Calculating A Credit Score?

Understanding the credit score is like a big mystery for many people. You are one of those who might feel like it’s a big mystery. Your credit score shows people how trustworthy you are at taking money and paying it back. It’s important because it can affect many parts of your financial life, like getting a loan for a car or a house, and even sometimes when you apply for a job.

So, how many factors are taken into account when calculating a credit score? what goes into calculating this important number? Let’s break it down in simple terms.

How Many Factors Are Taken Into Account When Calculating A Credit Score?

1. Payment History

The most important factor in your credit score is your payment history. This makes up about 35% of your score. Payment history is just a record of whether you’ve paid your bills on time. If you always pay your bills by their due date, this will help your credit score. On the other hand, if you often miss payments or pay late, your credit score will go down.

Think of payment history as your report card for paying back money. Just like getting good grades in school helps you, paying your bills on time helps your credit score.

Also read: Does The Method For Calculating Credit Scores Seem Fair To You? Why Or Why Not?

2. Amounts Owed

The second biggest factor is how much money you owe, which is about 30% of your credit score. This doesn’t mean just having debt is bad. Instead, it looks at how much of your available credit you’re using. This is called your credit utilization ratio.

For eg., if you have a credit card has a limit of $1,000 and you have taken $200 from it, your credit utilization ratio is 20%. Experts usually recommend keeping this ratio below 30%. If you use too much of your available credit, it might look like you’re relying too much on borrowing money, which can hurt your score.

3. Length of Credit History

Next, about 15% of your credit score is based on how long you’ve had credit. This is called the length of your credit history. The longer you’ve been borrowing money and using credit carefully, the more useful it is for your credit score.

There are a few parts to this:

  • The age of your oldest account: How long ago you opened your first credit account.
  • The age of your newest account: How recent your latest credit account is.
  • The average age of all your accounts: How long, on average, you’ve had your credit accounts.

If you’re just starting out with credit, it will take time to build a long credit history. But with responsible use, your credit score will improve over time.

4. New Credit

Another factor, which makes up about 10% of your score, is new credit. This checks how many new credit accounts you’ve opened recently and how many times you’ve applied for new credit. When you apply for credit, it’s called a “hard inquiry” and it can slightly lower your score for a short period.

If you open several new accounts in a short time, it can suggest that you’re in financial trouble or planning to take on a lot of debt, which can hurt your score. It’s usually best to only apply for new credit when you really need it.

5. Credit Mix

Finally, the remaining 10% of your score is based on your credit mix. This is about the different types of credit accounts you have, like credit cards, car loans, mortgages, and student loans. Having various types of credit can show that you’re able to manage different kinds of debt responsibly.

However, you don’t need to go out and get different types of loans just to improve this part of your score. It’s more important to handle whatever credit you do have responsibly.

Also read: Why is Figuring Out the Unit Price of Something Useful When Shopping?

Putting It All Together

To summarize, your credit score is made up of five main factors:

  1. Payment History (35%) – Are you paying all your bills on right time?
  2. Length of Credit History (15%) – How long have you had credit?
  3. Amounts Owed (30%) – How much of your accessible credit are you presently using?
  4. Credit Mix (10%) – Do you have several types of credit accounts?
  5. New Credit (10%) – How often do you actually apply for new credit?

Tips to Improve Your Credit Score

Boosting your credit score takes some time and patience. Here are some easy and effective tips to help you begin:

  • Pay your bills on time: This is the most important thing you can do. Set up reminders or automatic payments if you have trouble remembering.
  • Keep balances low: Try using less than 30% of your available credit. If you can, aim for even lower.
  • Don’t close old accounts: If you have old credit accounts, keeping them open can help your length of credit history.
  • Limit new credit applications: Don’t apply for new credit unneccessirly.
  • Check your credit report: You’re entitled to a free credit report every year from each of the three major credit bureaus. Checking your report can help you spot errors and understand what’s affecting your score.

Understanding Your Credit Report

Your credit report is a complete record of how you’ve managed credit over time, including your accounts, payment history, and outstanding debts. It’s used by lenders to assess your creditworthiness. It shows your payment history, credit accounts, and any debts you owe. The 3 very important credit bureaus – Equifax, TransUnion, and Experian – each make a credit report for you. Credit score calculation is done based on these reports.

Here’s what you’ll typically find in your credit report:

  • Personal Information: Your name, address, Social Security number, date of birth, and employment information.
  • Credit Accounts: Details about your credit cards, mortgages, student loans, and other loans. This includes the date you opened the account, the credit limit or loan amount, acc balance, and history of your payment.
  • Credit Inquiries: A list of everyone who has checked your credit report in the last two years. This includes hard inquiries from applications for new credit and soft inquiries from things like pre-approved credit offers.
  • Public Records and Collections: Information about bankruptcies, foreclosures, lawsuits, wage garnishments, and any overdue debt that has been sent to collections.

Common Credit Score Myths

There are so many myths about credit scores. Let’s clear up a few of the most common ones:

  • Myth 1: When you Check your credit score it will lower it. This is not true. Looking at your own credit score doesn’t hurt your score. It’s called a soft inquiry.
  • Myth 2: There is a requirement to carry a balance to build credit. You don’t have to carry a balance to build credit. Paying off your balance in full each month is actually better for your score.
  • Myth 3: Closing old accounts will help your score. Closing old accounts can be the reason that hurt your score because it can lessen your credit history and enhance your credit utilization ratio.

Also read: Why is Figuring Out the Unit Price of Something Useful When Shopping?


Your credit score is an very important part of your financial health, but it doesn’t have to be a mystery. By understanding the five main factors that go into your score – payment history, amounts you owed, length of the credit history, new credit, and credit mix – you can take steps to improve it. Remember to pay your bills right on time, keep your credit ussage ususally low, and only apply for new credit when you need it. With patience and responsible credit use, you can build a strong credit score and open the door to better financial opportunities.

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