Your credit score is an important part of your financial life. It can affect your ability to get approved for loans, credit cards, and other financial opportunities. But what actually determines your credit score? The good news is that it’s not as complicated as it might seem. Your credit score is based on a few key factors that show lenders how you manage borrowed money.
Let’s break down the five main factors that make up your credit score and what they mean for you.
1. Payment History (35%)
Your payment history is the biggest factor in your credit score. Simply put, lenders want to see that you pay your bills on time. Making on time payments on credit cards, loans, and other credit accounts can help build a positive payment history. Missing payments, especially when they’re more than 30 days late, can hurt your score.
Helpful Tip: Set up automatic payments or reminders so you don’t forget a due date. Even small, consistent payments made on time can help you build a positive credit history.
2. Credit Utilization and Amounts Owed (30%)
Credit utilization is how much of your available credit you’re using. For example, if you have a credit card with a $1,000 limit and you’ve spent $300, you’re using 30% of your available credit. Generally, using less of your available credit is better for your score. This category also looks at how much you owe on other types of credit accounts, including loans.
How to Manage Credit Utilization
If you’re looking to improve this part of your credit profile, consider:
- Paying down existing credit card balances
- Avoiding maxing out your credit cards
- Making payments throughout the month when possible
- Keeping track of balances across multiple cards
It’s also important to understand that credit utilization primarily applies to revolving accounts, such as credit cards. Installment loans, which have scheduled payments over a set period, are evaluated differently within the amounts-owed category.
3. Length of Credit History (15%)
This factor looks at how long you’ve had credit accounts. Lenders like to see that you’ve been managing credit responsibly over time. For example, someone who has had a credit card for five years may have a longer credit history than someone who opened their first account last month. But don’t worry if you’re just starting out. Everyone has to start somewhere!
Helpful Tip: Building credit takes time. Focus on keeping your accounts in good standing and making payments consistently.
4. Credit Mix (10%)
Your credit mix refers to the different types of credit accounts you have. There are two common types:
- Credit Cards: You can borrow money up to a certain limit and pay it back over time.
- Installment Loans: You borrow money and repay it through scheduled payments, such as with a car loan, student loan, or personal loan.
Having experience managing different types of credit can help your score. However, you don’t need to open several accounts just to improve your credit mix.
Helpful Tip: Only take on credit that makes sense for your financial situation and budget.
5. New Credit and Inquiries (10%)
When you apply for a new loan or credit card, the lender may check your credit report. This is called a hard inquiry, and it can temporarily lower your credit score. Applying for several new credit accounts in a short period may have a bigger impact. However, checking your own credit score is considered a soft inquiry and won’t hurt your score.
Helpful Tip: Be mindful of how often you apply for new credit, and only apply when you need it.
Simple Ways to Build Better Credit Habits
Now that you know what goes into your credit score, here are a few easy habits that can help you work toward improving it:
- Pay your bills on time. Even one missed payment can affect your score.
- Keep credit card balances low. Try not to use too much of your available credit.
- Don’t apply for too much credit at once. Only open accounts when you need them.
- Check your credit reports. Review them regularly to make sure everything looks accurate.
- Be patient. Building a positive credit history takes time and consistency.
Remember, you don’t have to make huge financial changes overnight. Small steps can add up over time.
How GoCredit.me Can Help
If you’re looking to start building credit or strengthen your credit history, GoCredit.me is here to help. GoCredit.me offers a 3-in-1 credit-building installment loan designed to help eligible borrowers build credit and work toward savings goals.
First, you’ll receive a portion of your loan amount to address your urgent or unexpected financial needs. This could include buying back to school supplies, repairing your car after a fender bender, covering unplanned medical bills—or any other expense that needs fast funds. We’ve got your back.
GoCredit.me reports payments to 1 of 3 major credit bureaus once a month on your behalf. When you make payments, that payment history information is transmitted to the credit bureau.
Once your loan is successfully paid off, your set aside savings are released according to your loan terms. It’s a way to work toward building credit and savings at the same time.
Keep in mind that credit score improvements aren’t guaranteed and depend on your individual credit history and payment activity.
The Bottom Line
Your credit score doesn’t have to be confusing. The five main factors—payment history, amounts owed, length of credit history, credit mix, and new credit—help lenders understand how you manage credit.
The most important thing to remember? Good credit habits take time.
Ready to start your credit-building journey? Visit GoCredit.me to learn more about how we can help you work toward your financial goals.
