Learning Objectives
- Understand the five factors that make up your credit score
- Learn how much each factor matters
- Discover actionable ways to improve each factor
- Know which factors to prioritize
The Five Factors Overview
Your FICO credit score is calculated from five categories of information. Here's how much each one matters:
● Payment History
● Credit Utilization
● Length of History
● Credit Mix
● New Credit
1. Payment History (35%)
This is the most important factor. It answers one question: Do you pay your bills on time?
What Counts
- Credit card payments
- Loan payments (mortgage, auto, student, personal)
- Retail account payments
- Collections and charge-offs
- Bankruptcies, foreclosures, judgments
Impact of Late Payments
- 30 days late: Can drop score 60-110 points
- 90+ days late: Even more severe damage
- Collections: Stays on report for 7 years
- Bankruptcy: Stays on report for 7-10 years
Action Steps
- Set up autopay for at least the minimum payment
- Use calendar reminders for due dates
- If you'll be late, call your creditor BEFORE the due date
- One late payment hurts more if you have good credit
2. Credit Utilization (30%)
This measures how much of your available credit you're using. Lower is better.
The Formula
Utilization = (Credit Card Balances) ÷ (Total Credit Limits) × 100
Example
$1,500 balance on cards with $10,000 total limit = 15% utilization
Utilization Guidelines
| 0-9% | Excellent - Maximum score benefit |
| 10-29% | Good - Still positive impact |
| 30-49% | Fair - Starting to hurt |
| 50-74% | Poor - Significant negative impact |
| 75%+ | Very Poor - Major score damage |
Action Steps
- Keep utilization under 30% (under 10% is ideal)
- Pay down balances before statement closes
- Request credit limit increases (but don't spend more!)
- Keep old cards open even if unused
3. Length of Credit History (15%)
This considers how long you've had credit accounts. Older is better.
What's Measured
- Age of oldest account: Longer = better
- Age of newest account: Newer accounts lower average
- Average age of all accounts: Key metric
- How long since accounts were used: Activity matters
Why This Matters for Closing Cards
Closing your oldest card can hurt your score by reducing your average account age. Think twice before closing old accounts!
Action Steps
- Keep your oldest accounts open
- Start building credit early
- Use old cards occasionally to keep them active
- Be patient - this factor improves with time
4. Credit Mix (10%)
This rewards you for having different types of credit accounts.
Types of Credit
Revolving Credit
- Credit cards
- Store cards
- Lines of credit
Installment Loans
- Mortgages
- Auto loans
- Student loans
- Personal loans
Action Steps
- Don't obsess over this - it's only 10%
- Never take on debt just for credit mix
- A credit card + installment loan is usually enough
- Focus on payment history and utilization first
5. New Credit (10%)
This tracks recent credit applications and new accounts.
Hard vs. Soft Inquiries
Hard Inquiries
Affect your score
- Credit card applications
- Loan applications
- Apartment rental checks
Soft Inquiries
No score impact
- Checking your own credit
- Pre-approval offers
- Background checks
- Employer credit checks
Impact of Hard Inquiries
- Each hard inquiry can lower score by 5-10 points
- Impact fades after 12 months
- Stays on report for 2 years
- Rate shopping for mortgages/auto loans counted as one inquiry if within 14-45 days
Action Steps
- Only apply for credit when you need it
- Space out applications by 6+ months when possible
- Do rate shopping within a short window (14-45 days)
- Use pre-qualification tools (soft inquiry) to check odds before applying
Prioritizing Your Efforts
Focus in This Order
- Payment History (35%) - Never miss a payment
- Credit Utilization (30%) - Keep under 30%, ideally under 10%
- Length of History (15%) - Keep old accounts open, be patient
- New Credit (10%) - Limit applications
- Credit Mix (10%) - Don't stress about this one
Key Takeaway
Payment history and credit utilization together make up 65% of your score. Master these two factors - always pay on time and keep utilization low - and you're most of the way to excellent credit.