Your credit score isn’t just a random number—it’s the foundation of your financial health! Understanding what makes up your credit score is the first step to improving it and opening doors to better financial opportunities. Let’s break down the five factors that determine your credit score, with actionable tips to boost it along the way.
Read more: How Your Credit Score Is Calculated: A Breakdown of the 5 Factors1. Payment History (35%)
Your payment history is the single most important factor in your credit score. Lenders want to see that you’re reliable when it comes to repaying debts. Even one missed payment can stay on your credit report for up to seven years and affect your score with negative points for 1-2 years.
Tips to Improve Payment History:
- Automate your payments to ensure bills are always paid on time.
- Use tools like the Chime Visa Credit Builder Card to build a positive payment history with no risk of overdrafts.
- Consider apps like Grow Credit, which help you build credit by paying for subscriptions like Netflix or Hulu.
2. Credit Utilization (30%)
Credit utilization is how much of your available credit you’re using. The lower your utilization rate, the better for your score. Experts recommend keeping your credit utilization below 30%, but for the best results, aim for under 10%.
Tips to Lower Utilization:
- Pay off balances before the statement closing date.
- Check out Self for credit-building installment loans that don’t impact credit utilization.
3. Length of Credit History (15%)
The age of your credit accounts also plays a significant role. The longer you’ve had credit, the more trustworthy you appear to lenders. That’s why it’s essential to keep older accounts open and in good standing.
Tips to Extend Credit History:
- Avoid closing old accounts unless absolutely necessary.
- Open accounts like Kikoff Credit or Credit Builder Card early in your credit journey to establish long-term accounts.
4. Credit Mix (10%)
Lenders like to see a mix of different types of credit accounts, such as credit cards, auto loans, and mortgages. A diverse credit mix shows that you can handle multiple types of credit responsibly.
Tips to Diversify Your Credit Mix:
- If you’re new to credit, consider a secured card like the Credit Builder Card or Credit Strong.
- Add a short-term installment loan through Self.
5. New Credit (10%)
Every time you apply for new credit, a hard inquiry is added to your credit report. Too many hard inquiries in a short time can hurt your score and make lenders wary.
Tips to Manage New Credit:
- It’s recommend to have a maximum of 6 hard inquiries in 6 months.
- Monitor your credit with tools like SmartCredit Credit Monitoring to understand when it’s safe to apply for new credit.
Building a Strong Credit Profile
Building your credit score doesn’t happen overnight, but with consistency and smart choices, you can see real improvements. Here’s a quick recap:
- Prioritize paying bills on time.
- Keep your credit utilization low.
- Maintain older accounts.
- Diversify your credit mix.
- Be strategic with new credit applications.
These factors work together to create your credit score, and understanding them gives you the power to take control of your financial future. Ready to take the first step? Explore tools like the Chime Visa, Credit Builder Card, Self, and Credit Strong to start building or improving your credit today.
Take Action Today
Check out our full list of credit-building products and services designed to help you succeed: 10 Accounts to Build or Rebuild Credit from Scratch