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What Makes Up Your Credit Score?

Credit Score, Personal Finance
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Credit scoring companies won’t reveal their exact formulas, but they do share the basic ingredients they use to calculate scores from credit report data. And once you know them, you know the most effective ways to protect and build your credit.

Why do you care? Because your credit often holds the key to other parts your life: whether you can get a credit card or car loan, and at what interest rate; whether you can buy a house or rent the apartment you want; even how much you pay on car insurance and utility deposits.

The credit factors that matter most

The two major scoring companies in the U.S., FICO and VantageScore, differ a bit in their approaches, but they agree on what counts most:

Payment history: Your credit reports reveal whether you’ve consistently paid bills and other obligations on time. Paying bills late by 30 days or more can dent your scores — and the later you pay, the greater the damage.

The amount of your credit limit you use: That’s called credit utilization, and experts recommend using no more than 30% of your available credit. People with the highest scores tend to use much less than that.

These two factors make up more than half of each of your credit scores. FICO says payment history accounts for 35% of your score and the amount of credit you use counts for 30%. VantageScore doesn’t give percentages, but it calls payment history “extremely influential” and credit utilization “highly influential.”

Other credit factors you should know about

Once you’ve mastered paying on time and keeping credit utilization low, turn your attention to other credit factors. These also affect your scores, though not nearly as much:

The length of time you’ve had credit: Longer is better, so keep old accounts open unless there is a compelling reason to close them, such as an annual fee on a card you no longer use. You might be able to help yourself a little in this category by becoming an authorized user on an old account with an excellent payment record.

The kinds of credit you have: It’s best to have a mix of installment accounts — those with a set number of equal payments, such as car payments or mortgages — and credit card accounts.

The length of time since you’ve applied for new credit: Each application that causes a hard inquiry on your credit may take a few points off your score.

Total balances and debt: It’s best if you’re making progress in paying off your debt.

How to use your newfound knowledge

Credit scoring companies review your credit reports to see how you’re doing on all these factors. Then they build your scores from that data.

You can see the same things they do by checking your credit reports. Not sure what credit reports include? Here’s a quick explainer.

Focus your credit-building efforts on on-time payments and keeping balances low relative to credit limits, because those factors have the biggest effect on your scores. You can set goals and see your efforts pay off with NerdWallet’s free credit score dashboard.

Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.