Your credit score can make a big difference in your life, but have you ever wondered exactly how that specific number is determined.

Knowing how a credit rating is measured is one of the first steps to improving your score. Let’s take a look at how FICO uses specific categories to determine your number.

How Is Your Credit Score Measured?

Payment History: 35%
The biggest single factor determining your credit score is your payment history. Lenders like to know that you’ve been reliable in the past, so the more you make consistent, timely payments, the more you’ll see a rise in your score.

Amount Owed: 30%
Owing a large amount on your credit accounts won’t automatically create a high-risk situation, but you don’t want to get too close to topping out your available amount. If the majority of someone’s available credit is used, it could mean they are over-extended, possibly leading to late or missed payments.

Length of Credit History: 15%
For the most part, the longer a person’s credit history, the less likely they are to default on loans. FICO looks at factors like how long your accounts have been established and how long it’s been since you last used them.

Types of Credit Used: 10%
This category looks at your mix of credit types, including credit cards, store accounts, mortgages, and other loans. It’s not necessary to have one of everything, and you should never open accounts you don’t intend to use, but having a good credit mix shows you are responsible and organized.

New Credit: 10%
Research has shown that opening many lines of credit over a short period of time can create a significant risk for default. It’s okay, and even recommended, to check your credit on a regular basis, but people who open many accounts at once could see a drop in their score.

Learn how credit inquiries affect your score

Now you have a basic understanding of how your credit score is measured, and can use this knowledge to get a better rating and a brighter future.

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Last modified on Friday, 13 June 2014