Credit Score 101: The Anatomy of Your Credit Score

A huge part of your financial life is your credit score. It's the biggest deciding factor between getting that loan or not and makes a huge impact on interest rates or down payments that come with loans.

The big three credit bureaus — Equifax, Experian and TransUnion — use a scale of 300 to 850 for credit scores, while alternative credit reports use a scale of 100 to 850. The higher your credit score is, the better it will be for your financial well-being.

But what exactly influences your credit score? How do the big three credit bureaus create and build it?

Let's take a look at the factors affecting your credit score and how much weight each factor holds.

Payment History (35%)

Your payment history shows how well you pay the debts you owe. Always paying your bills on time can have a positive effect on your credit score, while a habit of paying late or missing your payments can negatively impact your credit score. For late payments, other details taken into account include:

  • Number of late payments. 
  • Degree of lateness. 
  • Frequency of late payments.
  • Date of last late payment. 
  • Amount owed. 
Always paying your bills on time can have a positive effect on your credit score.Always paying your bills on time can have a positive effect on your credit score.

Your payment history also includes other negative financial information such as foreclosures, bankruptcies and any delinquencies reported to collection agencies.

Credit Utilization Ratio (30%)

Your credit utilization ratio refers to how you use your available credit. It's the ratio between how much credit you have (based on credit limits) and your actual credit usage (based on credit balances).

Having a low credit utilization ratio means good credit management, so aim for a ratio of 30% or lower.

Credit Mix (15%)

Your credit mix identifies the types of credit you have and how many you have of each type. Credit types include credit cards and installment loans such as mortgages, car loans, student loans and personal loans.

Having different types of credit in good standing means you can manage credit well.

Number of Accounts (10–12%)

This refers to how many credit accounts you have, the balance associated with each account and how many accounts are old or new.

It's usually better to have more accounts with zero balance than accounts with balances. Keep those zero-balance accounts open, especially if they're old accounts. It's also best to open new accounts only when you need them.

Length of Credit History (5–7%)

Your length of credit history shows how long you've been using or maintaining your credit accounts, including the average age of all your open accounts.

Having a long credit history means you can properly manage credit over a period of time.

All these factors may be critical to your credit score but it's ultimately up to you to build good financial habits that will lead to better and higher credit scores.

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