Deep Dive: Factors That Make Up Your Credit Score
Go beyond the basics and understand the specific weights and interactions of factors influencing your credit score.
Your credit score is more than just a number; it’s a complex calculation based on multiple data points from your financial life. Understanding how these factors are weighted can help you prioritize your efforts to improve your score.
1. Payment History (Approx. 35% of your score)
This is the most critical component. It tracks whether you have paid your past credit accounts on time.
- What it includes: Timeliness of payments on credit cards, retail accounts, vehicle finance, mortgages, and other loans.
- Negative impacts: Late payments, missed payments, accounts sent to collection, defaults, and judgments all significantly lower your score. A single late payment can have a lasting effect.
- Why it matters: It’s the best predictor of your future behavior. Lenders want to see a consistent and reliable track record.
2. Amounts Owed / Credit Utilization (Approx. 30% of your score)
This factor looks at how much debt you carry relative to your available credit.
- What it includes: Your current balances on all revolving accounts (like credit cards and store cards) compared to their credit limits. The number of accounts with balances is also considered.
- Negative impacts: High credit utilization (maxing out your cards) suggests you may be over-reliant on credit and at higher risk of default.
- Why it matters: It shows how well you manage your debt load. A good rule of thumb is to keep your utilization below 30% on each card and overall.
3. Length of Credit History (Approx. 15% of your score)
A longer credit history generally leads to a higher credit score.
- What it includes: The age of your oldest credit account, the age of your newest account, and the average age of all your accounts.
- Negative impacts: A short credit history (being new to credit) means lenders have less data to assess your reliability.
- Why it matters: It demonstrates your experience in managing credit over time. This is why it’s often advised not to close old, unused credit card accounts.
4. New Credit & Enquiries (Approx. 10% of your score)
This factor considers how often you apply for and open new accounts.
- What it includes: The number of recent hard enquiries on your credit report. A hard enquiry occurs when a lender checks your credit as part of a formal application.
- Negative impacts: Opening several new credit accounts in a short period can represent greater risk and temporarily lower your score. It suggests you might be in financial trouble.
- Why it matters: Lenders want to see stable and controlled credit-seeking behavior.
5. Credit Mix (Approx. 10% of your score)
This refers to the variety of credit products you manage.
- What it includes: The mix of different types of accounts, such as revolving credit (credit cards) and installment loans (vehicle finance, home loans).
- Positive impact: Successfully managing different types of credit can indicate that you are a responsible and experienced borrower.
- Why it matters: While it’s the least influential factor, a good mix can give your score a slight boost. However, you should never take out a loan you don’t need just to improve your credit mix.
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