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Do You Understand The 5 Components Of Your Credit Score?

Understanding the 5 Components Of Your Credit Score

Your credit score is one of the most important things to review when considering the state of your financial and credit health. It is important to understand the 5 major components that go into this score which are:

1. Payment History

Payment history accounts for nearly 35% of your credit score and is the largest determining factor. Your payment history is comprised of your timeliness in making payments on credit cards, mortgages, and other debt.

2. Credit Utilization

Credit utilization is the total amount of available credit you are using and this accounts for nearly 30% of your credit score. It is important to keep the ratio of your credit utilization low, usually less than 30% of your total available credit.

3. Length of Credit History

Length of credit history plays a sizable role in your credit score and accounts for about 15%. This include the average length of time you have had open accounts and the age of your oldest, newest and recent accounts.

4. Credit Mix

Having a history of different types of credit, such as a mortgage, credit card, auto loan, installment loan and any other type of available credit makes up 10% of your credit score. These all show potential lenders that you are able to take on and manage different forms of credit.

5. Recent Credit Activity

This accounts for the smallest percentage of your credit score at 10% and is based on recent applications for credit and inquiries. Too many inquiries for credit in a short amount of time can be a red flag for potential lenders.

Now that you understand the 5 components of your credit score you will be better equipped to plan and make expert credit decisions.

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