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The Anatomy of a Credit Score

Dissecting all the parts of this important metric

By

Laura Gariepy

July 16, 2021

Man Jumping In the Street, by Andre Hunter from Unsplash

You may have heard that having a high credit score increases your chances of getting approved for a loan and receiving a low interest rate. But did you know that your credit score is actually made up of five different elements? Since there are so many moving parts involved, it can be tricky to understand changes in your score. 

We’re here to help. While we can’t tell you exactly what contributes to your specific score, we can outline the many factors that impact a credit score. That way, you’ll have a better idea of what financial activities can help - and hurt - this important metric.

Please remember: The following percentages give you a rough idea of how much weight each element carries.

Your Payment Track Record: 35%

Your payment track record, or payment history, has the biggest impact on your credit score. In fact, it accounts for about 35% of your total rating. Accounts factored into your payment history can include credit card, installment loan (car loan), mortgage payment, and finance company accounts. Your creditors track and report each payment you make to the credit bureaus. Late or missed payments could cause your score to drop. But, timely payments month after month demonstrate financial responsibility and can translate into a higher score.

How Much Debt You Have: 30%

Coming in at around 30%, how much debt you have in relation to your total available credit limit across your credit cards and lines of credit (aka your credit utilization) can have a major impact on your score, too. Lenders want to see that you’re not maxing out your accounts. Why? Using your entire credit line could indicate that you’re strapped for cash, which could make it difficult for you to repay a new loan. As a general rule, many credit experts recommend keeping your utilization under 30%. That means, if you have a combined $1,000 credit limit across two credit cards, keeping your total amount owed at $300 or less may reflect positively in your credit score. 

Note: If you have multiple credit cards, keeping low to zero balances on one or two may help lower your overall utilization. However, keeping your credit balance at $0.00 for too long may result in an account closure, which could negatively affect your credit score. 

Remember, while paying down (and eventually off) your mortgage or car loan is a good goal, how much you owe doesn’t impact your credit score.

How Long You’ve Had Credit: 15%

How long you’ve had credit, or the length of your credit history, takes a backseat to your payment history and credit utilization. But, coming in at roughly 15% of your score, it’s still a significant player. This component considers the age of your oldest credit account, the age of your newest credit account, and the average age of all of your credit accounts. In general, the longer your credit history, the better it is for your score because you’ve had ample opportunity to prove that you’re a low-risk borrower. As long as you manage your credit accounts responsibly, time is your friend.

Illustration by Kyle Duong

What Types of Credit Accounts You Have: 10%

Believe it or not, the types of credit accounts you have (aka your credit mix) matter. This component makes up approximately 10% of your credit score. Lenders like to see that you can dependably handle a variety of financial obligations that include both revolving lines of credit (think credit cards) and installment loans (think mortgages, car loans, or student loans). If you maintain a healthy mix of credit accounts and manage them responsibly, you could see a credit score boost.

In short: Over time, try to build a credit history that features a variety of accounts. But -- don’t open new accounts just to improve your credit mix. Only apply for the credit you truly need.

Number of New Credit Accounts: 10%

Also coming in at around 10%, the number of new credit accounts you open can have an impact on your score. When you apply for a new credit card or loan, the bank will likely pull your credit, which is known as a hard inquiry. Each inquiry will get reported to the credit bureaus, appear on your credit reports for up to two years, and could negatively impact your credit score for up to one year. 

Plus, if a lender sees a lot of these checks (especially from credit card companies), they may think it’s too risky to lend you money because you could be spreading yourself too thin financially. Fortunately, inquiries for mortgages or car loans are often lumped together, so they have less of an impact on your credit standing. The bottom line: applying for multiple new credit card accounts around the same time could lower your score.

Final Thoughts

As you can see, your credit score is multifaceted. Now that you know about each of the five components, you’re better equipped to work towards the score you want or need. 

Remember: using your Mission Lane card responsibly over time can only help your score.

Related Reading: Want to dive deeper into these five components? Check out this myFICO article for more information.