What Factors Make Up My Credit Score?

As mortgage brokers, we often find that people are genuinely surprised by their credit score when the time comes to buy a home. Your credit score is what lenders use to gauge your creditworthiness for paying back their loan. Most U.S. lenders use the FICO scoring model. These scores can vary widely from the “educational” scores you might receive from other models represented on popular credit tracking websites.

FICO pulls data from the three credit bureaus (Transunion, Experian, and Equifax) to generate your score. Scores range from 300 to 850, and the higher score you have, the less risky you seem to lenders. Generally, applicants with a FICO score above 760 will receive the best mortgage rates.

Now that you know which model you should be using to determine your credit score, you may be wondering exactly what makes up that all-too-important number. Here’s a breakdown of the different factors that affect your credit score.

1. Payment History – 35%

The payment history on your various accounts is the biggest contributing factor to your credit score. Lenders like to see a long-term picture, usually around 12-24 months, of on-time payments before issuing a mortgage. Keep in mind this standard applies to both credit accounts and installment loans, so they should be given the same consideration for payment.

If your credit is struggling, the best way to improve your score is by making the decision to never miss another payment—and sticking to it. Once you can show that you’re serious about making consistent timely payments, lenders will be more likely to work with you, even if you didn’t have perfect credit in the past.

2. Credit Utilization – 30%

Making up nearly one-third of your score, credit utilization is the percentage of available credit you’re using. For example, if you owe $1,000 on a $2,000 credit card, your utilization is at 50%. Typically, lenders recommend using less than 30% across credit accounts, and the lower utilization, the better for your score. Consistently maintaining low credit card balances will help you achieve a better FICO score and show lenders that you can handle debt responsibly.

3. Length of Credit History – 15%

The length of your credit history will have an impact on your score. Your credit report will show how long each account has been opened as well as when it was most recently updated. FICO considers the Average Age of Accounts, also known as AAoA. Their model calculates the average by taking the length of the oldest account and the newest account and dividing that by the total accounts in the individual’s name.

Generally, the longer credit history a borrower has, the better their score will be. However, this doesn’t mean that someone new to credit can’t achieve a great credit score. It ultimately comes down to how you manage the credit given to you. With the right profile of revolving and installment accounts with no missed payments and low balances, it’s possible to earn an excellent credit score in a relatively short period of time.