Payment history 35%: Is a snapshot of your ability to pay back money you borrowed on time. Payment history allows credit issuers to see how financially responsible you are and if you have a positive or negative payment history. This is the single largest factor affecting your credit.
Ex: If you have one credit card that you’ve had for a year and you’ve made two late payments your credit score will be impacted much more than if you’ve had two late payments on a credit card you had for five years.
Credit utilization 30%: Simply means the aggregate or sum of all available debt (maximum credit limit) in comparison to the amount you utilize at the time you credit card company reports to the credit bureaus. The second largest factor effecting your credit.
Ex: You have three credit cards, each credit card has a $1,000 limit totaling $3,000 in available credit. You have a $2,250 balance spread out over all three credit cards. Meaning you are using 75% of the credit available to you, you are deemed as a credit risk and less likely to be offered new lines of credit.
Credit history 15%: Is the aggregate age of all your lines of credit. Did you get your first credit card last month? If so, creditors or issuers of debt see you as a liability for the simple fact that they have no paper trail which could include the following items student loans, installment loans (purchasing a car or home), and credit cards.
Ex: You have three items on your credit report which include your one student loan (opened 4 years ago) you took out in college and two credit cards you opened after graduating college (2 years ago). Your combined credit history is two and a half years.
Credit mix 10%: The diversity of credit you have issued in your name. The two most common types of credit are installment loans and revolving debt. Installment debt is any debt that has a definite maturity or payoff date (mortgage, car loan, student loans). Revolving debt does not have an expiration date (credit card).
Ex: You only have student loans on your credit report, you are considered to have a poor “credit mix”.
Inquiries 10%: A snapshot of how many times you have applied for new credit within the last two years. Anytime you apply for a new form of credit you give the creditor permission to take a look at your credit report. Which reports on your credit report as a hard inquiry. These are small factor effecting your credit score.
Ex: You go car shopping and allow three different dealerships access to view your credit file you could see your score negatively impacted.