Credit Score Breakdown

A credit score is a tool that companies use to figure how financially responsible you are. They use the 3-digit number to decide whether to give you money, assets and decide how large the deposit needs to be. You most likely know why you need a good credit score already but do you understand how your credit score is calculated? If you don’t then don’t feel bad because you have a lot of company.

According to Experian (credit reporting company) the average American credit score is 687 and shows the southern states typically report lower scores.

The benefit of understanding how credit scores are calculated is you can figure which area is hurting you the most. Take a look at the graph and I will break it down with advice for improvements.


Payment History (35%)

Your payment history accounts for 35% of your score and it makes sense since a lender will want to know that you will pay them back. If you have a few late payments then it’s an automatic “score killer”. Account types that affect this section are credit cards, retail accounts, mortgage loans, finance company accounts and installment loans like a car loan. It is simple to improve this section by paying your monthly payments on time. I recommend one monthly alarm to pay the bill 5 days before due date and a second alarm 2 days before due date to make sure it is paid. Also, talk to your lender companies about “late payment forgiveness”. If you typically pay on time it is likely that they will forgive the late payment, it worked for me before like a charm.

Other negative factors that are taken serious are bankruptcy, foreclosures, lawsuits, judgments, liens and wage attachments. Needless to say make sure you handle these factors properly and seek professional help.

Amount Owed (30%)


Owing money on your accounts doesn’t mean you automatically receive a low score for this section. FICO looks at the percentage of the amount you owe vs. the amount of credit line. For example, if you owe $9,000 on your credit card with a max credit line of $10,000, you owe 90% of your credit line. This is unfavorable when calculating your score because the percentage you owe is too high. There is no magic percentage that you should stay below but the popular recommendation is below 75%. The only rule to know is the lower the utilization, the better. This was my area of weakness and I attacked it as such. After a few months of lowering my credit card utilization my score has increased significantly.

Length of Credit History (15%)

This section is rather basic with figuring. A longer credit history will increase your FICO score. When this is being calculated they take into account the following:

  • How long your credit accounts have been established
  • How long specific credit accounts have been established
  • How long it has been since you used certain accounts

Credit Mix in Use (10%)

According FICO “The credit mix usually won’t be a key factor in determining your FICO Scores—but it will be more important if your credit report does not have a lot of other information on which to base a score.”

FICO will penalize you if you have too many lines of credit open-ended. Accounts that are included are credit cards, retail accounts, installment loans, mortgage loans and finance company accounts. Now before you go gung-ho and start closing all your accounts it doesn’t mean the accounts still won’t show on your credit report. I recommend in the future to be cautious of additional accounts you open and stay away from retail accounts.

New Credit (10%)

Lastly, FICO scores you based on how many new credit accounts you have open in a short period of time in the last 12 months. It is a common myth that your score will drop if you apply for a new credit but this is FALSE. Applying for a credit card will not lower your score but if you apply for too many in a short time it will have a negative affect. FICO only cares about the number of accounts you open or try to open, thus if you rarely apply for new lines of credit you are in the clear.

After reading this I want you to do some homework for yourself this week. Sign up for a service similar to Credit Karma and look up your account history. The service is free, requires some basic information and gives great insight into your credit score without ordering it. Quick disclaimer; the score maybe off by a few points but it is close enough to give you an idea of where you stand. The software will enable you to see:

  • Current FICO score
  • FICO score history
  • Late Payments
  • Open credit accounts and outstanding balances

Analyze your score breakdown and figure tactics to make improvements. Your score will not improve over night; it is truly a work in process and takes time. The sooner you start the sooner you will finish! It took me a good year to make some serious progress but it was all worth it. I paid extra on my credit card for a few months and my credit score is in the 700s. Trust and believe if I can do it so can you.


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  1. Thanks for writing this. I’m in the process of rebuilding my credit and enjoyed reading this. Do you advise using

    1. I don’t advise using credit repair companies unless you had your identity stolen or bankruptcy before. The companies that promise to repair your credit essentially just do the work you can do. I would recommend signing up for Credit Karma (for the free) and see what’s on your report thus far. Most of the issues can be fixed by you and save you money instead of using a service. Send me a email if you want more help when you pull your report.

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