1. The 5 Components of Your
Credit Score
Did you recently get a copy of your credit score? Do you
want to know what the 5 components of your credit score
are and how you can improve it?
As you know, your credit score is a 3 digit number which is
determined mathematically by each of the 3 major credit
bureaus.
Think of it as a kind of financial report card; the higher the
number the better.
The credit bureaus won’t reveal the exact formula used to
calculate your credit score, however they have revealed the
5 major components that make up the formula.
Each component is assigned a percentage which contributes
to your overall score
Payment history: 35%
Amounts owed: 30%
Length of credit history: 15%
New credit: 10%
Types of credit used: 10%
Now that you know what the 5 credit score components are,
let’s look at how to improve your credit and increase your
credit score with each one.
Payment History: This is the most heavily weighted factor
when determining your credit score. It makes sense that
The 5 Components Of Your Credit Score

2. missed payments will affect this part of your credit score,
but did you also know that late payments will to? To the
credit bureau, a late payment is viewed the same as a
missed payment, even if it’s just a few days late. So if you
think that holding off your payments for “just a few days
more” won’t hurt your credit score, it will.
Do you best to make your credit card payments on time,
even if it’s just the minimum required amount.
Amount Owed: This is basically the amount of money
owed vs. the total amount of available credit across all your
open credit accounts. The ideal number that the credit
bureaus like to see is somewhere between 30% and 50%.
So if you have $10,000 in total credit but only have $4000
total owing, your debt to credit ratio would be 40%, which
puts you in a good spot with the credit bureaus.
The other thing to factor in here is the number of accounts
open. You should have about 2-3 accounts to demonstrate
that you are a responsible credit card holder; any more that
this and it might look like you are over extended, which will
hurt your credit score.
So to recap, keep the amount of debt owed vs your total
available credit to under 50% and try and have at least a
few active accounts so you can add positive history to your
credit file.
Length of Credit: Does size matter? The third most
important factor when it comes to your credit score is made
up of 2 parts; the first being the length of time since you
opened your first credit account and the second being the
average length of time your accounts have been opened.
The 5 Components Of Your Credit Score

3. In both cases you want to have a few well established
accounts on record. So if it’s been a few years since you’ve
opened an account; great. Try to avoid opening any new
accounts unless you really, really have to because this will
lower the average overall length of your credit accounts.
New Credit: As mentioned in the previous section adding to
much “new credit” to your account can actually hurt your
credit score in two ways. The first being that every time you
apply for a new credit card, there is a credit inquiry pulled
against your account known as a hard inquiry which lowers
your score ever time it’s done.
The second way that new credit affects your score is that it
lowers the overall length of established credit on your file.
Each time a new account is open the average length of your
established accounts drops because the new account is now
taken into consideration.
The moral of the story when it comes to new credit is this;
before you apply for that new credit card offer in the mail,
try reducing the amounts owed on your current accounts.
You’ll free up credit and add positive credit history to your
file at the same time.
Type of Credit: The credit bureaus like to see that you’re
responsible when using credit and they like to see diverse
types of credit on your file.
Having many different types of credit ie credit cards, line of
credit, installment debt, etc gives your file some teeth. The
credit bureaus want to see that your availing yourself to
their services but at the same time not overextending
yourself, so try and keep your balances low vs. what is
available to you (see Amount Owed ) section.
The 5 Components Of Your Credit Score

4. Now that you know the 5 contributing factors to your credit
score, you can start putting them to work for you instead of
against you.
Here’s an idea for you; take each component of your credit
score and spend 1 or 2 months of the year improving that
section, then at the end of the year see how much your
score has increased.
After that try refinancing some loans to see if you can get a
better interest rate; remember, the money you save on
interest goes straight to your pocket.
Click Here To Boost Your Credit Score to 750+
The 5 Components Of Your Credit Score