What Goes Into a Credit Score?

People talk a lot about credit scores, but what are they even? And what do they really mean? What goes into a credit score?

It’s way more simple than you think.

A credit score is a number between 300-850 that rates how reliable you are when given a line of credit.  Lower is less reliable, higher is more reliable. It’s a score that changes over time, based on your financial behavior.

What sort of behaviors? Well, anything involving money, really. Your credit cards, your mortgages, your personal loans, your car note, your utility bills, and sometimes even things like your rent or other miscellaneous bills could be factored into your credit score.

There are several versions of different scoring models in the marketplace, so if you see some variation when checking out your credit score, don’t be afraid. That’s totally normal. They’re all weighing factors differently to create your score.

When credit bureaus look at your behavior, they’re checking for a few main things. In no particular order:

• New credit accounts
• Your different credit types
• Your credit utilization
• Length of your credit history
• Your payment history

It sounds like a lot, but when you break each item down, they’re a lot easier to understand. You can even see your personalized factors broken down in our Score Factor tool, making it way easier to see what you’re doing well at and where you can improve.

New Credit Accounts

The longer you have an account, the easier it is to see the pattern of your payment/spending behavior and rate you on it. If some, or all of your accounts are new, it’s more difficult to assess your creditworthiness, so your score might be on the lower side for a bit.

If you’re opening a bunch of new accounts all at once, or even just getting the credit inquiries from applying, some might see that as financially risky behavior, which could result in a lower score as well. It’s best to keep applications to a minimum – do it only when you need it – and try to keep them spread out.

If you do have an inquiry or two, it’s not the end of the world.  However, keep in mind that inquiries can show on your credit report for as long as two years, so be deliberate with your credit applications.

Different Credit Types

Having a little variation is good in almost any situation, and your credit report is no exception. Try to vary your credit types, like car payments, credit cards, mortgages, etc. A blend of types of credit could show lenders you can handle different types of loans.

Credit Utilization

Credit usage is just what it sounds like – how you use your credit. Do you hit your credit limit regularly? Do you leave your credit cards unused and inactive? How much of your available credit are you taking advantage of each month?

Bureaus take that into account when scoring you. They keep an eye on how much credit you have available to you across all accounts, add up how much you used, and calculate that into a percentage is used in the process of scoring you.

Aiming for 30% or less is a good general rule of thumb, say most sources. Keeping your credit utilization at 30% (or lower!) will help you build a strong score. Don’t shy away from making more than one payment, setting your own spend limits within the account, or setting spending alerts to help you manage this if it’s an issue you run up against often.

Length of Credit History

To get a credit score, you’ve got to have credit. If you’ve never had a line of credit before, you’re both lucky and unlucky. You get to start from scratch – but sometimes, lenders will be hesitant to hand out credit to folks who have never had it before. They can’t predict how you’ll treat it.

If your credit history is long and not so pretty, the passing of time gives you an opportunity to smooth things out that happened in the past. If you were a little hard on your credit years ago, you could potentially right those wrongs, up your score, and up your opportunities to get credit.

A general rule: the longer your credit history, the better (especially if you’ve been on your best behavior with the account). That’s why it’s often recommended to leave credit card accounts open, even if you don’t use them.

Payment History

It’s pretty simple: having a credit report full of on-time, in-full payments shows you’re able and willing to be responsible with what you’re given. Creditors are taking a risk when they lend you money. They want to know they’ll get it back.

Hey, we get it. Paying on-time and in-full is easier said than done. Sometimes, it’s just not possible. However, make sure you’re at least hitting those minimum payments each month. Once you’re doing that regularly, you can work towards upping that payment amount.

And keep in mind: one late payment can stay on your credit report for as long as seven years.

Managing your credit score

The best way to stay on top of your credit score and its development is to check it regularly. Being plugged into each of the factors above, so you know what you need to work on, as well as keeping an eye out for any discrepancies could put you on the path towards better credit scores, more opportunities, and a brighter financial future.

Want to see how different financial decisions might impact your score? We’ve got a tool for that. Check out our Credit Simulator in Best Egg Financial Health to see what you could be capable of. Best Egg Financial Health is a space where you can keep an eye on your score, see your full credit report, and learn more about navigating your finances. Lucky you!

This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.