Most of us know what makes a credit score. We know what to do to improve your score and how to avoid trouble in the first place. But what about the weight of each factor? Not all the pieces of the credit score puzzle are counted equally, and it’s important to know which factors pack the most punch.

Credit scores are based on a very complex algorithm. They are designed to create the fairest score possible for each individual. A credit score is calculated is by breaking it down into five different categories, each with different levels of importance.

The single most important category is your payment history – making on-time payments for the minimum amount or more. This category counts for 35% of your credit score. Companies take the last seven to ten years of your credit history into consideration when evaluating your credit score and any late or less-than-minimum payments can have a nasty effect on the score. Other negative marks on your credit record included in this category are collection accounts, bankruptcies, tax liens, judgments, and other public records.

The next category is debt utilization rate. It represents about 30 percent of the total score. That means that together with payment history these two categories count for a whopping 65 percent of a total score. The debt utilization rate refers to available credit and the percentage being used. If you’re using the majority of your available credit you’re taking a hit to your credit score. The best way to fix this is to keep your balances low. Typically use no more than 15% of your available credit.

The other three categories account for much smaller percentages of the score. Account ages makes up about 15 percent of your score. If an individual hasn’t established credit yet, the best way to start is by getting a new credit account for a needed item, such as a car. It is best to start earning credit as early as possible. Keep credit accounts open for a lengthy period of time, and pay them regularly. If an account has to be closed close the newest one first.

The last two categories both represent 10 percent of a credit score. The first one, the inquiries category, looks at how many times you apply for new credit within a set period of time. A check for new credit every once is fine, but too many checks can have a negative impact. It’s also important to note that checking one’s own credit reports or being pre-approved for credit does not negatively impact a score. Only when credit has been pulled for what is called a hard inquiry, when individuals apply for loans or cards, does the credit check affect a score in any way.

The last category is diverse accounts. It’s sort of an odd factor to base credit scores on but nonetheless it’s there. Credit reporting companies want to see that individuals are not putting all of the eggs in one basket. It’s best to have a variety of accounts- some credit cards, a student loan, a mortgage, an auto loan, etc. If you don’t yet have an auto loan in your credit portfolio and would like to add one, please be sure to contact us at Scott McCorkle’s Liberty Buick GMC!