Why is the formula for a good credit score such a mystery? International students assume Americans know the secrets of credit because it’s such a huge part of our culture. But the fact is, most Americans don’t have any proper education in financial matters and many don’t know how a credit score is calculated. We decided it was time to end the mystery and identify the 5 parts of your credit score through a clear, easy-to-understand infographic that also explains how to improve your score.
1. Payment History
Pay on time. Every on-time payment is in your favor. Make at least the minimum payment or pay off your balance in full.
Calculate 20% of your credit limit across all your open cards and make sure you stay below that number. This plus your payment history equals 65% of your score.
3. Credit Timeline
Never close out old cards. The longer you’ve been using credit, the higher your score.
4. Credit Variety
The greater your credit variety — including credit cards, loans, and other forms of financing — the better. A small influencer but an easy one to improve.
5. New Credit
Opening too many new lines of credit in a short period lowers your score. It’s only 10% of your score, so it’s not a huge influencer.