My Credit Score Makes No Sense

Having trouble understanding your credit score? Here’s how to make sense of that three-digit number lenders use to decide how creditworthy you are.

Your credit score is determined by five key factors, all of which come from information in your credit report (you can see your credit reports for free, every year, from all three credit bureaus).

Understanding each factor will help you understand your credit score.

Payment History

Your payment history accounts for about 35% of your credit score. So if you paid late — especially if you missed multiple payments — your credit score will suffer.

And if you never miss a payment and pay all your bills on time, your credit is likely to be healthier.

Debt Usage

How close your credit card balances are to your credit limits affects your credit score. Called credit utilization, this factor accounts for about 30% of your credit score.

So if you have a credit card with a balance that is close to the limit, get a repayment plan in place and work on paying down that debt. Doing so can help to improve your credit score.

Work to keep credit card balances low — less than 10% of a credit line is your safest bet. Just starting out with your credit? Charging small amounts and paying your bill in full each month is the way to go.

Age of Your Credit Accounts

Just how long you’ve had open and active credit accounts impacts your credit score. The length of your credit history accounts for about 15% of your credit score. So it may be worthwhile to hang onto the very first credit card account that you opened and you might want to use that account from time to time so the issuer doesn’t close it.

If you don’t use your older accounts, you may be tempted to close them. But if that means closing your oldest account you may want to reconsider.

Inquiries for New Credit

How often you apply for credit impacts your credit score. When you apply for a loan or credit account, you give a lender permission to request a copy of your credit report. Doing so initiates what is called a “hard inquiry” (a so-called “soft inquiry,” as when you check your own score, does not affect your credit) into your credit, and these inquiries are noted on your credit report and factored into your credit score. Inquiries account for about 10% of your credit score.

Your Mix of Credit Accounts

The types of credit that you are using account for about 10% of your credit score. Do you have credit cards and installment loan accounts? How about a mortgage, car loan and student loans? You’ll generally earn a higher score if you manage a mix of credit accounts responsibly.

You can see two of your credit scores for free on Credit.com. It’s truly free, and it also gives you a personalized explanation of your score and specific suggestions for improving or maintaining your scores.