Jake Tuff 
Your credit score plays an integral part of your financial life. Financial institutions use it to assess whether or not they offer loans and credit cards you are eligible for.
FICO and VantageScore use various formulas to calculate your score, taking into account factors like debt levels and how much credit is still available to you. These factors play an important role in how they determine their score calculations.
1. Payment History
Be it easy or challenging, your payment history has the biggest influence on your creditworthiness. Lenders want to see evidence that you can pay back debt – this factor accounts for 35% of your overall score.
Credit history includes both past and current loan and card payments reported to credit bureaus by your creditors as well as payments that go into collections. It also takes into account how much owe on each account (known as credit utilization). A lower credit utilization score indicates greater financial health; late payments ding your scores significantly and could stay on your report for up to seven years, so pay your bills on time! Keep this vital piece of your finances healthy!
2. Length of Credit History
Both FICO and VantageScore take into account your length of credit history as an important element when scoring you, though its weight doesn’t compare with payment history and utilization ratios. A lengthy credit history shows lenders and credit card issuers that you are capable of handling loans responsibly.
Your credit history includes both the age of your oldest account and an average age for all accounts, which can be calculated by adding up the oldest and newest credit card and loan accounts on your report. Opening new cards may shorten this average age; so avoid opening too many in quick succession as each hard inquiry from applying for new loans could temporarily lower it.
3. New Credit
Lenders use credit scores to evaluate whether you are creditworthy as a borrower. Achieving higher scores can help you secure loans, rent an apartment and lower insurance premiums.
Recently used credit and the number of new accounts you have are both key components to your score. Opening too many new accounts at once may signal to lenders that you are either struggling to repay debts or desperate for credit, and may raise red flags among lenders. Furthermore, numerous inquiries for one type of loan (like mortgage) in short succession could wreak havoc with your score.
Your debts make up 30% of your credit score, including balances on credit cards and other accounts as well as the ratio between how much is owed compared with available credit. A large debt balance could lower your score while paying off older debts and increasing credit mix can boost it.
4. Credit Utilization
Your credit utilization–the ratio between how much you owe on credit cards or other revolving loans and the total loans from lenders–and your available balance (also referred to as utilization ratio in FICO and VantageScore scoring models) – is another key element that determines your score. It accounts for 30 percent of your score.
An excessive credit utilization ratio signals overextension, increasing your risk for failing to repay borrowed money on time or at all. For maximum creditworthiness, it’s crucial that this ratio remains low; one way is through paying down debt or using credit cards sparingly – however closing unused cards immediately could cause a sudden spike in utilization rates, and charging large sums onto cards should also be avoided.
5. Credit Cards
Credit cards are powerful financial tools of convenience and security, yet how you use them could have an enormous impact on your creditworthiness. For optimal results, focus on building one or two cards over time while paying them off promptly every month by their due dates – although you could add more credit cards for rewards or to expand spending capacity as long as they don’t incur too much new debt and are within their established credit limit.
Missed payments and carrying a high balance on any credit card can negatively impact your score, as will closing cards that alter your credit mix or increase utilization, as well as applying for too many accounts in too short a time period – both are detrimental.
