Many lenders today depend on credit scores for so many big loans, such as a mortgage,car  or student loan. Your credit score helps determine if you can get a loan and how much interest you’ll end up paying.

If you’re wondering what makes up your credit score, this post is going to review the five factors that you have to manage. While we don’t know the exact method of how Fair Issac calculates your score, we do know what they consider.

If you’re willing to work on these points, you can build your score up.

Five Factors That Decide Your Credit Score

As you can see on the pie chart, some factors are more important than others. If you can’t do all of them, try to start of with the first two points, and build from there.

Components of the FICO® score

  • Payment history – 35%
  • Amounts owed – 30%
  • Length of credit history – 15%
  • New credit – 10%
  • Types of credit used – 10%

Source: MyFico

35% – Paying your bills on time: If you’re late with your payments, not only can you get a late fee charged to you, but after 30 days, it ges reported to the credit bureaus.

How to fix it: Make sure you get current on all your bills and start paying them on time. Make sure you don’t have any accounts in collections. As you pay on time month after month, year after you, your FICO will go up.

30% – Debt you owe and the amount of available credit: It’s not just how much debt you’re carrying, it’s how much of your available debt you’re taking advantage of. Another reason why it may not be a good idea to cancel unused credit cards.

How to fix it: If you don’t want to take a big hit on your credit score, don’t cancel too many credit cards at the same time, as it can have an adverse effect. You can also pay down your credit card debt and improve the debt/available credit ratio.

Don’t open an account JUST to increase your credit limit. Instead focus on paying down the debt.

15% – Your credit history length: This is basically keeping track of how long you’ve had your accounts.

How to fix it: This is easy to do, but it takes time. You just have to keep being responsible

10% – New credit applications: This considers how many accounts have been opened up recently.

How to fix it: Another simple one to improve, just don’t open too many accounts at once. Also remember that some banks pull your credit report so keep that in mind.

10% -Different Types of Credit: Having a mix of installment loans like a mortgage

How to fix it: This shouldn’t be a huge problem, so be aware of the accounts you have. DO NOT get a car loan so you can have an installement. Getting into debt to build a record is not a smart move.

If you’re looking for more information on specifi credit report situation, JD and Jim had a wonderful interview with Liz Pulliam Weston on how credit score works and how to improve them.