What Comprises Your Credit Score?

It’s not just a three-digit number.

It bears importance to your financial future. Credit scores indicate how well a consumer is at repaying debt. Everybody from credit card lenders to realtors to car salesman wants to know your credit score.

Before they take a look at your score, you should get to know your credit score.

Here’s a breakdown of what comprises your credit score. Use this to target the most weighted elements of credit scores, especially if you struggle with a certain area.

Payment History – 35 Percent

Payment history accounts for a plurality of your credit score. Late bills, unpaid bills, and bankruptcies hurt your score in the worst way. Worse yet is letting bills get to a collection agency. Lenders consider this facet of the score because they seek reliable customers who can make payments on time.

Current Debt – 30 Percent

With too much debt to your name, your score takes a hit. Exactly how big of a hit is difficult to pinpoint. Fair Isaac Corporation (FICO) has proprietary rights and ownership of the formula used to calculate scores. Regardless, focus on lowering your utilization rate, which is how much credit you’ve used compared to how much credit you have. Keep credit card balances below 30 percent of your limit as a general rule.

Duration As A Consumer – 15 Percent

It’s better to have had credit for years than for months. How long you’ve had credit is 15 percent of your score. With a longer history of paying off debt and bills in a timely manner, your score rises.

New Credit – 10 Percent

This 10 percent is based on starting new types of credit. In the short run, opening new accounts is bad for your score. That changes in the long term. Also considered in this 10 percent are types of inquiries on your credit. Hard inquiries are those made by lenders, credit card companies, and car dealerships. Several hard inquiries in a short period of time poorly affect your score. Soft inquiries are made for informational purposes and barely affect your score, if at all.

Existing Credit – 10 Percent

Ideally, your credit history includes more than one type of credit: loans, credit cards, lines of credit or a mortgage. Scores weigh the types of credit you have or had for 10 percent of your score. Carrying or having carried different types of credit gives lenders more reason to trust you.

It may seem unnecessary to know the breakdown of your credit score, but it can only help you. Look at what aspect(s) you need to improve and how heavily weighted they are. Then prioritize them, fix them, and watch your score increase.

Christian Losciale is a staff writer for Smart Military Money, a personal finance site for service members, veterans, and their spouses.