What’s in a Credit Score: The Big 5 (2024)

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By now you probably know that credit scores are a pretty big deal. By being able to measure your so-called creditworthiness, lenders use your credit scores to determine everything from your interest rates to your credit limits to your approval ratings — and understanding what goes into credit scores themselves is key to building credit the right way.

Credit scores are calculated using a pretty complicated algorithm that takes five big things (and lots of other little things) into consideration: payment history, debt, length of credit, credit utilization, and types of credit. To make the best of your credit score, you’ll need to understand them —from credit utilization to on-time payments, this is your big-picture primer on credit scores and the things that affect them.

What’s in a Credit Score: The Big 5

1. Payment history: One of the most important pieces of information you need to understand when it comes to credit scores is how vital it is to have a great payment history. Missed payments, late payments, and nonpayments are a quick way to lower your credit score —lowering your credit worthiness along the way, too. Payment history accounts for a huge piece of your credit score itself,which is where automatic payments and a budget can really come in handy. On the other hand, consistently making all of your payments on time is an excellent baseline for scaling your credit score.

2. Your credit types: Credit type (also known as your credit mix) comes into play when calculating your credit score, too —meaning that a more diversified credit portfolio can often mean better things for your score. For instance, it’s better for your score to have several different types of credit —think: a car payment, a mortgage, and a credit card payment, instead of five different credit card payments. You can think of it as having installment accounts (something like a car payment with a scheduled number of payments), along with a mix of things like credit card accounts (with variable payments).

3. Debt: Debt (or outstanding balances) are a pretty big piece of your credit score calculation. However, having debt does not necessarily need to mean that your credit score suffers. Instead, look at debt as something that needs to be paid down —and focus on doing so. Debt that consistently moves down in balance shows that you’re a trustworthy borrower, while debt that stays the same (or heightens), may show the credit bureau that you don’t need any more credit opportunities until you’ve paid off your debt.

4. Credit utilization: Credit utilization —or how much of your available credit that you’re actually using —is a big factor in your credit score. As a general rule of thumb, you’ll always want to keep your credit utilization right at or under 30% of your usage. For instance, say you have a credit limit of $3,000 —you’ll want to try and stay under about $300 of used credit at a time. On the other hand, if you have a credit limit of $30,000, you’ll want to stay under about $3,000. This shows lenders that you can use credit wisely.

5. Length of credit history: The length of time you’ve had a line of credit open also matters when deciding on your credit score, though having a shorter credit history isn’t necessarily a bad thing. The biggest lesson learned here is that you’ll want to keep accounts open as long as possible —even if you use them minimally. By raising your average credit age, you’ll further show credit bureaus that you know how to use credit well.

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No matter how old you are or how great you are at managing your money, understanding financial services jargon is tough —and that includes the weird world of credit score algorithms. At the Council for Inclusion in Financial Services (CIFS), we’re all about helping to educate you so that you can make responsible decisions that make sense. Learn more about us today.

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