What Makes Up A Credit Score?

Do you know what makes up your credit score? Most consumers do not, yet their score is the most used metric to determine if they are credit worthy. Many Americans who are trying to use credit often ask how they improve their credit. Before they can improve their credit, they understand what factors affect their credit score.

Your credit score consist of five main parts. They are: Payment History, Amounts Owed, Length of Credit History, New Credit and Types of Credit.

Payment History makes up about 35% of your credit score. If you make all of your payments on time then you will be benefiting your credit score. Any late payments will have a negative effect, with the most recent late payments have the worst effect.

Amounts Owed makes up about 30% of your score. If you have a mortgage, auto loan and credit card debts, these are the balances that you still owe on them. The higher your balance owed, the lower your credit score. Credit utilization is factored in Amounts Owed. The greater percentage of credit used of the available credit, the lower the credit score.

Length of Credit History makes up about 15%. Older accounts will help your credit score. Newer accounts may hurt your credit score in the beginning until a history can be established.

New Credit makes up about 10% of your credit score. New credit may reflect as positive or negative depending on your actual situation. Inquires usually appear with new credit and they can lower credit scores. Also, New Credit does not have any history, so it reflects poorly in the Length of Credit History category. But if you make payments on time and do not maximize the credit line, New Credit accounts will ultimately not reflect poorly against your credit score. Remember, opening a new account may actually cause your credit score to drop from 10-30 points. If you keep good payment history on the account, you will see that recover fairly quickly.

The Type of Credit that you have will also count towards your credit score. If the majority of your credit is in the form of credit card or "non-secured" debt it may hurt your score. Typically, longer term loans such as mortgages and car loans with positive histories are most beneficial.