How Credit Scores Work: The 5 Key Factors

Understanding how credit scores work:

#1. Most Important - Payment History (35%) – On-time payments are crucial. Even one missed payment can lower your score, making it harder to qualify for a mortgage.

#2 Credit Utilization (30%) – Keeping credit card balances low (below 10% of your limit) improves your score and signals responsible credit use.

#3 Length of Credit History (15%) – The longer you’ve had credit accounts open, the better. Lenders like to see a well-established track record.

#4 Types of Credit Used (10%) – A combination of revolving credit (credit cards) and installment loans (auto, student, or mortgage loans) helps improve your score.

#5 Frequency of Credit (10%) – Too many recent applications can temporarily lower your score, so be strategic when applying for new credit.