What Makes Up Your Credit Score

Your credit score is incredibly important for many reasons from buying a home to paying less on debt you do owe. People often use good credit to leverage their money and achieve more than those who have bad credit.

If you are wanting to improve your credit and reach a good credit score so. you can have more opportunities then you first need to know what makes up your credit score.

How To Get Your Credit Score

You can get your free credit score from Credit Karma here via my affiliate link. You can also get free scores from major credit card providers.

One thing to note is that Credit Karma and other free services offer your Vantage Score, not your FICO score. Most lenders use the FICO score as your credit score which means your free score you are tracking may be off. Based on what I’ve seen from hundreds of people it can be off anywhere from 2 points to 100 points depending on your credit profile.

If you want your accurate credit score that lenders will see then you have to pay for it. You can purchase your score from the consumer facing side of the FICO brand at My FICO. This is the only option to see your FICO score unless you are working with a lender who will let you see it in their portal.

You can get your FICO score at My FICO with plans starting at $19 a month, via this affiliate link and cancel when you don’t need it any longer.

What Makes Up Your Credit Score

The information in this post and video about what makes up your credit score is from Credit Karma. I chose to use Credit Karma as an example because it lays out the information well and makes it easy to understand. It’s also a FREE platform that has helped hundreds of thousands of people improve their credit.

According to their platform (and from what I’ve seen in improving my own credit score), your credit score is made up of these 6 factors:

  1. Payment history
  2. Credit card use (credit utilization)
  3. Derogatory marks
  4. Credit age
  5. Total accounts
  6. Hard Inquiries

As you will see, these factors also differ in how much they affect your score. Some will make more of an impact like payment history and others will make less of an impact like hard inquires.

Seeing 6 factors makes credit seem less overwhelming since you only have 6 things to work on improving.

Payment History

Payment history makes a huge impact on your credit score. It’s well known it contributes almost a third of your score so making sure you pay bills on time is incredibly important.

Even one late payment can injure your credit score and drop it by many points. It’s important that you always pay your bills on time and if you are late on any payments you make sure you try to correct or dispute it.

Remember that a single 30 or 60 day missed payment is easy to recover from in the long run but will initially hurt your score a lot. A 90 day missed payment can be so damaging it leads certain loans and lenders to disqualify you automatically. This is all calculated via a formula that includes all possible payments on all accounts so the more missed payments you have the worse it will be and the harder it will be to recover.

Lenders want to know that you will pay your bill on time so make this your highest priority when thinking about credit.

  • Action steps: Set up auto pay for as many bills as possible and set calendar reminders for due dates to make sure things get paid on time.

Credit Card Use

Credit card use or credit utilization is the calculation of how much of your credit you are actually using. Credit card use is a good way to measure this because credit cards are a line of credit where you have access to a lot of credit and can use it – or not.

Credit card utilization matters most for each individual card but your score also takes into account the average use across all cards and lines of credit.

The goal is to stay under 30% of your credit used and 10% is ideal. You don’t have to carry credit card debt or pay interest in order to build credit. You can open a couple cards and charge just a small amount and pay it off every month.

  • Action tip: Calculate your utilization rate for each credit card and then work on a plan to pay down balances to 10%.

Derogatory Marks

Derogatory marks like collections, bankruptcies, civil judgements and tax liens are all things that are negative and can negatively affect your credit score for a long time. These can stay on your credit report for 7-10 years so it’s best to avoid or remove them if possible.

Debt collections have to have proof that you own the debt and everything is accurate so you can work through the process of verifying, disputing, and settling your debt.

If it’s over a couple years old you may also just decide to let it fall off your credit report. The older a collections account is the less it will affect your credit score.

  • Action steps: Make a list of all the derogatory marks on your credit report. Start working on improving them by using the “pay for delete” method for collections.

Credit Age

Credit age is another important factor because creditors like to know that you are going to be using credit wisely for a long period of time before they lend to you.

Experience handling credit is important and to show this you should always keep your oldest accounts open. I cringe when people pay off their credit cards then close the accounts because they hurts you so much in the long run.

Make sure you keep your oldest credit card open and use it for 1 small thing every since month so it is active and not auto closed.

  • Action step: There isn’t much you can do here other than make sure you take out credit early and keep it active!

Total Accounts

The total number of accounts you have is another factor in your credit score but this one has a low impact on your actual score.

Having different type of accounts like credit cards and installment loans is a factor in your score. This is something people generally build over time as they open more accounts with different types of credit.

Personally I’ve seen that you generally want at least 2 credit cards in use and one installment loan in order to have the best credit.

  • Action step: Make a plan to strategically increase your accounts by opening a new line, but don’t just rush out and open multiple at once!

Hard Inquiries

Hard inquiries are a factor in your credit score and while they have a low impact, having too many can drop your credit score.

Luckily unlike the other factors this is usually a temporary drop and will even back out after about three months.

As you can see from my credit score slide above, we recently applied for a new refinanced mortgage which is why we had more inquiries and our score dropped temporarily.

  • Action step: Only apply for credit when you absolutely need it and try to plan ahead to minimize these inquiries in the year before you get a mortgage.

Building Your Credit

If you are struggling to build or repair credit then this should give you a good start to work on improving your credit. By focusing in on 6 different elements you are able to eliminate things that don’t matter but could waste your time.

I recommend you start from the top of the list and then work your way down. You will get the most improvement from your efforts if you focus on what affects your score the most. This means getting organized and making a plan to strategically pay off debts and increase your credit score!

Mary is the founder of Pennies Not Perfection where she shares her journey to build wealth through online income. She quit her day job in 2021 after she paid off her debt and doubled her 9-5 salary.

Mary's favorite free financial tool is Personal Capital. She uses their free tools to track net worth and work toward to financial freedom.

Her favorite investment platform is M1 Finance, where she built a custom portfolio for free with no fees. She shares her portfolio growth and savings progress every month on YouTube.