How is a Credit Score Calculated? The Break Down

Updated: Jul 20

Your credit score is made up of different factors of your credit history. Below, we’ve broken down what those factors are, how important they are to your score, and what you can do.



Payment History Payment History accounts for 35% of your credit score. Payment history deals with how long you’ve been paying your cards off and if you made those payments on time. Missing a payment can severely impact your credit report for up to 24 months after that missed payment.

What can do you? Make sure to make your payments on time to the best of your ability.

Debt to Income

DTI refers to the amount of credit you have available and of that amount, how much you are using. The best utilization is approx 30% of that allotted credit – which just so happens to also be the amount DTI impacts your credit score. For example, if you have a $100 limit on your credit card, try not to use more than $30 each month.

What can you do? Try to keep your utilization, or the amount you are putting on your credit cards, at no more than 30% of your total credit availability.

Longevity of Credit

This deals with your credit history. When did you open your first credit card? Student loan? Ect? Longevity of Credit accounts for 10% of your credit score. This is age of credit or how long have you had credit. Optimally, the credit scoring system would like to see you at a 36 month pay history. Longevity and pay history

What can you do?

If you are new to credit: First you have to get credit. You can do this by opening up your first credit card. Knowing what cards to apply for is important to build the correct structure in your credit. Longevity will change later on once you continue to build and establish future trade lines or accounts.

If you already have a credit history: Do not close accounts unless absolutely necessary. If you have a 99 month pay history and you close that card, you are losing, longevity of credit possibly diversity of credit and the payment history along with DTI. This will have a huge impact on your score.


Diversity of Credit

Diversity of Credit is also 10% of your credit score. This refers to the different types of credit you have – credit cards, auto loans, mortgages, student loans, personal loans. Diverse credit looks better within the Credit Score Algorithm.

What can you do? Your credit report and scores all start with a credit card. If you are young and living with your parents, ask them to put you on as an authorized user. You no longer get their longevity of credit, but assuredly will get the future of their credit. This is an easy way to show an immediate credit score if you do not currently have one.


New Credit Accounts

Opening up new lines of credit accounts impacts 10% of your credit score. This is a myth that opening a new credit account will negatively hurt impact your score because of the hard inquiry. We will discuss that below, but first let’s explain what happens if you close an account with opening a new one. Closing an account, such as a credit card, without establishing a new account will actually bring your scores down. It will lessen your DTI, pay history and longevity – and these are the biggest factors into your score. If you must close an account, supplement that change with a new account – this will keep your scores stable.

What can you do?To keep your DTI stable and growing, make sure not to close any accounts unless it is necessary. And always ensure that you are applying for the correct credit card at the correct time.


Credit Inquiries

Each time there is a hard pull on your credit report, meaning a company (such as Car Dealership or Bank) looks into your credit, this shows up on your report. Too many credit inquiries in a short period of time can have a negative impact on your credit score, but this is a very small factor at just 5%. Keep in mind that credit inquires only stay on your report for 24 months or less.

What can you do? You should really only need to pull your credit 2-3 times for the particular item you are looking for financing, especially because most preliminary shopping is done online. The internet has not only made the world smaller, but it has allowed us to access information in real time from banks and lender competing for your business. Try to focus on soft pulls when checking your credit score, but don’t put the fear of an inquiry before opening a new trade line, or line of credit, such as a new auto loan, credit card, or mortgage.

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