Most Americans think your credit score is made up only of your payment history. While this is the largest portion of your credit score, it is only 35% of your total credit score. Your score is made up of 5 sections:
- Payment History (35%)
- Credit Utilization (30%)
- Length of Credit History (15%)
- New Credit (10%)
- Credit Mix (10%)
Payment history is pretty much what it sounds like, the history of your payments. Creditors report payments made on-time, and late payments in 30 day increments up to 120+ days late. One of the fastest ways to improve your credit is by making payments on time.
A false rumor out there is different types of credit reports differently for payment history. This is false. A payment made on-time or late has the same effect revolving credit and installment loans all report payment history the same.
This is the amount of credit you’ve spent versus what you have available. For instance if you have a credit card with a $10,000 limit and your balance is constantly at $9,000 this will impact your credit score in a negative way. It’s recommended that have your balances on your credit cards under 30% before pulling your credit score.
Length of Credit History
I’m sure you’ve heard someone tell you before you shouldn’t cancel old credit cards that you don’t use anymore. Length of credit makes up 15% of your total score. This is why when you are new to establishing credit you can’t have perfect credit. It takes some time to develop credit history. And the older your credit history length is, it shows your ability to handle credit over a long period of time.
With your old cards that you don’t use anymore, it is recommended that you use them every so often so your creditor doesn’t cancel your account.
New credit isn’t opening multiple new accounts at the same time, this behavior could in fact damage your credit, as it may show that you are financial trouble and looking to max out credit you don’t intend on repaying. It is recommended that you open new credit as needed.
Open new credit effects the average account age, having new credit shows you are active and have the ability to still obtain credit.
This is the vague category of credit history. What is looked for here, is your ability to borrow and being responsible in repaying a variety of debts. So having a revolving credit line and installment loans helps improve your score as you have multiple types of credit.
For more information on your credit score and history reach out to one of our advisers today. If you would like a credit consultation where we review your credit reports with you and no cost, setup an appointment. This is no better time than now to improve your credit.