The Cost of a Bad Credit Score
What Is a Credit Score?
How Is a Credit Score Calculated?
- Payment history — 35 percent: Often the most important part of your credit score, payment history tells lenders if you have a history of paying your debts on time.
- Amounts owed — 30 percent: A high amount owed is not necessarily a bad influence on credit. FICO looks at your “Credit Utilization Ratio,” which is the percentage of your available credit that is currently being used. For example, if your credit card sets your credit limit at $1,500 and you keep a balance of $1,400, you may be at risk of negatively affecting your credit score.
- Length of credit history — 15 percent: In general, the longer your credit history, the better. For those just starting to build a credit history, don’t worry. It is still possible to maintain a high credit score by paying extra attention to the other criteria.
- Credit mix in use — 10 percent: The credit mix looks into the types and number of credit accounts owned. While it is a good idea to maintain credit accounts, it is not a good idea to open an account you don’t intend to use.
- New credit — 10 percent: Opening multiple new lines of credit in quick succession can negatively affect a credit score. Despite myths about credit inquiries being harmful, these alone tend to have little to no effect.