Having a good credit score is like being a member of an exclusive club. You have access to low interest rates and the ability to borrow with little to no problems. But how is your credit score calculated? Your credit score takes 5 things into consideration: your payment history, amounts owed, length of credit history, new credit, and types of credit.

  • Payment History: Those who have a good credit history are rewarded for it. This shows if you make your payments on time or if you’re constantly late. Paying your bills on time shows that you’re reliable and creditors are more willing to lend money to you, knowing they’ll get it back. Payment history makes up 35% of your credit score.
  • Amounts Owed: You’re not considered high-risk to loan to unless you already owe a lot of money on several different accounts. It’s best to keep a 0 balance as much as you can. The higher the amount of money owed, the lower your credit score. This counts as 30% of a credit score.
  • Length of Credit History: It takes awhile to prove yourself worthy to lend to. Those who are just starting off establishing credit may have a hard time finding people to lend with them. The longer you have credit, the better your score. The best tip is to keep your oldest account open if you can so it’s still active on your credit report. Credit history makes up 15% of your credit score.
  • New Credit: 10% of a credit score is determined by inquiries, or how many times you’ve applied for credit in a certain period of time. Lenders need to see if they’re giving something to a person who has little to no experience with credit, or if they can rely on someone who has a good record with their credit. If you open multiple accounts close to each other, you could be considered a risk.
  • Types of Credit in Use: Your credit should be diverse, meaning you have things like credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Lots of similar credit accounts don’t help your score, but different kinds can boost your score. Credit diversity is worth 10% of your credit score.

Different types of credit, a long history of paying on time, low balances and spacing out credit applications can get you a credit score to be proud of, and membership to the Good Credit Club.


Briana Myricks is a 20 something freelance writer and blogger. Striving for financial independence as a newlywed, she blogs about young married life at 20 and Engaged.