What Makes Up Your Credit Score?

Credit can be an intimidating subject, especially when just starting to build or become conscious of it. What is credit? How do I use it? What makes up a credit score?  How do I increase it?

These are all important questions to consider when starting on your credit building journey.  When used properly, credit is an extremely powerful tool for financial health and well being.

In this article, we will dive into the basics of credit to create a strong foundational understanding of what it is and how it works.

What Is Credit?

Credit is the ability to borrow money to access goods or services with the understanding that you will pay it back later, with interest.

Creditors (institutions that lend you money) will grant a certain limit of money you can borrow with an interest rate based on how likely you are going to be able to pay it back. 

The more trustworthy you are with handling this money, the better your credit.  The better your credit, the more money you are able to borrow and the better interest rates you will get.

Your credit trustworthiness is based on your credit report. 

Three independent credit bureaus (Experian, Transunion, and Equifax) compile your credit information. 

This includes voluntarily reported information on borrowing and repayment from banks, credit unions, credit card issuers, and other creditors.  Complex statistical models are used to calculate your three-digit credit score.  You are considered to be more trustworthy with credit as your score increases. 

What Do I Use Credit For?

Credit is typically used for paying down large purchases over time, instead of all at once.  It is integral to buying a home, purchasing a car, and many other large financial decisions.  

Your credit score can also be used by:

  • Landlords.
  • Utility companies.
  • Insurance companies.
  • Employers.

With a higher credit score, you are more likely to have favorable rates and lending options, which is why it is so important to understand the basics of credit to create a strong financial foundation for yourself.

What Makes Up A Credit Score?

Your credit score is broken down into 5 weighted categories: 

  • Payment history (35%).
  • Amounts owed (30%). 
  • Length of credit history (15%).
  • New credit (10%). 
  • Credit mix (10%).
Fico Score
                             Credit Score Breakdown. Source: MyFICO.com

1. Payment History (35%):

This is the most important factor in calculating your credit score because research shows that your track record of payment is typically the strongest predictor of determining whether you will pay back your debts.  Having no late payments ever is the best way to maintain good payment history, but one or two late payments will not necessarily drop your score drastically.  It really starts to show when you miss multiple payments across accounts.

Typical accounts that might report on your credit history are:

Tips to keep your payment history healthy include:

  • Paying bills on time.
  • Get current on any missed payments (the older the missed payment is, the less it negatively affects your score).
  • Contact creditors for help and guidance.  They can help you get a better interest rate to pay it down faster, help budget properly, or consolidate debts.  If in doubt, just ask! 


2. Amounts Owed (30%):

This is the second highest factor in determining your credit score because it is predictive of how able you are in managing current debts and your ability to take on future debts.  

Its comprised of 5 subcategories:

  • Amounts owed on all accounts.
  • Amounts owed on different accounts.
  • How many accounts have balances?
  • Amount of debt left on installment loans.
  • Credit utilization.

Credit utilization is one of the more important subcategories because it can sum up all the others in a simple ratio. 

This ratio is how much you owe vs how much credit you have, with zero utilization meaning you have not used any credit and 100% utilization meaning you have maxed it out.  

Low utilization will help your credit because it shows you are able to manage it well, whereas consistent, high utilization will negatively affect your score. 

Typically it is best to have a low, revolving utilization to show that you are using and managing your credit effectively.  If you have no utilization over an extended period of time (~12+ months) some companies will close out your line of credit.

3. Length of Credit History (15%): 

Typically credit history gets better with age like fine wines and cheeses.  The longer your credit history, the more positive the impact.  So while this is a smaller factor in your overall credit score, it can still create some hurdles when establishing credit.  

If you have no history, it’s hard for lenders to have an idea of your creditworthiness which can make it hard to get a loan when starting out.

When looking at the length of credit history, companies are looking at:

  • How long your credit accounts have been open, including your oldest account, youngest account, and the average age.
  • How long specific credit accounts have been open.
  • Time since last use.

Don’t fret, there are ways to establish credit when starting from nothing.

One way is to get a secured credit card.  A secured credit card is where you pay cash upfront as collateral for the line of credit. 

This gives you skin in the game and helps lenders feel more comfortable extending credit to you.  When you manage this properly, you can move on to unsecured cards (no money down) and other types of credit more easily because you have established your history and score.

Another way you can increase credit history is by being added as an authorized user. 

Typically this is someone in your family or a close friend with good credit who can add you to their credit line.  This can be a tough ask, but it doesn’t cost anything to be added. 

That can help give them some peace of mind knowing you are just piggybacking on their credit history and not actually using any of their credit.

4. New Credit (10%):

Typically, when opening a new line of credit, lenders use a hard inquiry to check your credit score.  The inquiry is kept on your credit report for 2 years and most lenders only consider inquiries within the last 12 months.  

New credit is a small portion of your overall credit score and can have positive or negative consequences.  

Too many hard inquiries within a short period of time will negatively affect your credit score because it makes lenders believe you might be taking on too much credit risk. 

An exception to this rule is when applying for mortgages.  You have a 45-day window to shop lenders and any hard inquiries within that window will be considered one inquiry on your credit report.

New credit will also lower your average age of accounts for your credit history, therefore possibly lower your credit score.  Though, since these are both small portions of your credit score, they will have a small effect compared with the first two categories.

If you open a new line of credit that is a different type of account than you already have, this will help diversify your accounts and increase your credit mix, therefore increasing your credit score.  But just like its effect on credit history, this will have a relatively small effect overall on your credit score.

5. Credit Mix (10%):

There are two types of accounts in your credit mix: installment and revolving.  The more diverse your accounts, the lower the risk you are in the eyes of the lender because it shows that you can manage different types of accounts.  

Examples of installment accounts include: 

  • Mortgages
  • Auto loans
  • Student loans

Examples of revolving accounts include:

  • Credit Cards
  • Retail Cards
  • HELOC (Home Equity Line of Credit)

Credit mix is a small portion of your overall credit score.  This should be one of the last places to worry about fixing your credit score.  Ultimately focus on the categories with the highest percentages to create the biggest impact.


Credit is an extremely useful and powerful financial tool, that, when used properly, can significantly help increase wealth.  We also know that when abused, it can create extreme financial hardship. 

That’s why an education on the basic levers of influence around your credit score is so important. 

Take this knowledge, and apply it to increasing your credit by focusing on the biggest categories first, and be consistent.  Great credit isn’t made overnight.  As the Chinese proverb goes:

The best time to plant a tree was 20 years ago. The second best time is now.”

Start now with great credit habits and reap the rewards later in life.

About Kyle Rousseau

I’m a financial consultant and educator passionate about personal finance and wealth building. I love talking about getting your finances on track and helping accelerate your growth both financially and personally. My background in sales, management and consulting give me a broad array of experiences and knowledge to draw on to help you achieve your goals.