If you want to improve your credit score, you need to understand the factors that make it up. There are five main components that your score is based on, and understanding how they work can help you identify ways you can boost your credit rating.

The Five Factors of Your Credit Score

improve your credit scoreYour credit score is based on information in your credit reports. The five factors that compose your score are each weighted differently. Here is a breakdown of how that works:

  • Payment History: 35%
  • Amounts Owed: 30%
  • Length of Credit History: 15%
  • Credit Mix: 10%
  • New Credit: 10%

So, if you are interested in rebuilding, building or improving your credit score, it starts with understanding what these factors lead to. From there, you can evaluate your own credit situation in relation to these fields. This will help you identify areas that need work.

That's the great part about how your credit score is calculated: you are in control when it comes to four of the five factors that make it up.

You Are in Control

There's nothing you can do about the length of your credit history. You started when you started, and the only thing you can do is keep going from there. Over time, your longer credit history will help your credit score. However, time only accounts for 15% of your score, so it isn't a big deal if you have a short history. The important thing for you is to keep going.

On the other hand, you are in the driver's seat when it comes to the other four factors. The key to truly improving your credit score lies in understanding them.

  • Payment History - 35%
    The most important factor, your payment history plays the biggest role in shaping your credit rating. As the name suggests, this has to do with how well you have repaid your accounts. Your payment history includes credit accounts, loans, utility bill accounts, etc. The best way to improve in this area is to make all of your payments on time. Every single time.
  • Amounts Owed - 30%
    This factor covers everything from the total amount of debt you have to your credit utilization ratio, which is your total credit card balances divided by their limits. Credit scores weigh this factor heavily because borrowers who keep their credit cards at their limits appear to be living beyond their means. This makes giving them access to future credit a bigger risk. To build good credit, you'll want to keep your credit utilization low. The rule of thumb is that this starts to hurt your credit rating when it tops 30%. If you want to see a big positive change to your score, get your ratio down to 0%.
  • Credit Mix - 10%
    This component looks at the different types of credit accounts you have right now and have used in the past. The two main categories are revolving credit accounts, which include credit cards, retail cards and the like, and installment credit accounts, which include loans and mortgages. This factor doesn't carry a ton of weight at 10%, but just note that it's a good idea to successfully manage both installment and revolving credit accounts.
  • New Credit - 10%
    This category looks at how many credit accounts you have opened up recently and the number of hard inquiries on your credit reports. If you open too many new credit accounts in a short period of time, it could signal to future lenders that you are too reliant on credit. All you need to do here is not open too many credit lines at once.

As you can see, the first two factors account for 65% of your credit score. Knowing this, paying bills and reducing balances is where you should focus most of your efforts.

The Bottom Line

Credit repair takes time and effort, but gaining an understanding of the credit score factors is a great place for you to start.

While improving credit takes time, sometimes your vehicle needs can't wait. If you need a car but are struggling to get approved for financing because of your credit, Auto Credit Express may be able to help.

We are connected to the nation's largest network of special finance dealerships. When you work with us, we'll connect you to one in your area that specializes in helping people in unique credit situations. This way, you don’t have to waste your time trying to find one on your own.

Our service is free and we work fast, so why not get started today? Begin by filling out our car loan request form online.