It is the most important factor that determines your credit score

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Credit ratings give lenders a holistic view of your financial history, but there’s one factor that matters most.

Payment history – whether you’re paying on time or late – is the most important factor in your credit score, accounting for 35% of your score. That’s more than any of the other four main factors, which range from 10% to 30%.

If you can maintain a positive payment history on all of your credit accounts, from credit cards to loans, you can show current and potential lenders that you can pay off loans and be on your way to good credit rating.

The general rule is that the higher your credit score, the more likely you are to qualify for credit and receive the best rates. And although this three-digit number may seem mysterious, you can increase your credit score by understanding the five key factors that make up your score and taking certain actions.

Below, we go over the five factors of your credit score and provide tips on how to get on top of each one.

What factors influence your credit score

  1. Payment history (35%)
  2. Amounts due (30%)
  3. Length of credit history (15%)
  4. New credit (10%)
  5. Credit composition (10%)

1. Payment history

What this means: That you paid off your old credit accounts on time.

How to master it: Make sure you pay every invoice on time. This can be done by setting up automatic payment, alerts and / or calendar reminders. When you configure automatic payment, always set it to at least the minimum due. This keeps your account up to date and sends positive information to the credit bureaus.

While you don’t have to pay your bill in full to get this factor under control (only the minimum payment is mandatory), we encourage you to do so so that you can reduce your amounts owed, which we explain next.

2. Amounts due

What this means: The total amount of credit and loans you are using against your total credit limit, also called your credit utilization rate.

How to master it: Try to maintain a low credit utilization rate of less than 10% (but not 0%), which is the threshold FICO “high performance” (consumers with credit scores of 750 and above).

To find your credit usage rate, divide your total balance by your total credit limit and multiply by 100 to get the percentage.

Say you have two cards, the Citi® Double Cash Card with a balance of $ 1,000 and a credit limit of $ 5,000 and the American Express Blue Cash Preferred® Card with a balance of $ 2,000 and a credit limit of $ 10,000 on each.

Combined, your credit limits on the two cards total $ 15,000 and your combined balances are $ 3,000.

Here is the calculation: ($ 1,000 + $ 2,000) / ($ 5,000 + $ 10,000) = 0.20 x 100 = 20%

3. Duration of credit history

What this means: The average duration of your loan.

How to master it: The main way to have a long credit history is to wait. The only way to increase the length of your credit history is to keep old credit accounts (and not closing your oldest credit card). Knowing how opening new credit accounts affects your average credit life is also essential.

To calculate the length of your credit history, add up the length of time you have opened all of your accounts and divide by the number of accounts. For example, if you already have a 10 year old credit card and you open a new one today, your average credit history is cut in half from 10 years to 5 years.

Here is the calculation: (10 years + 0 years) / 2 cards = an average of 5 years per card

4. New credit

What this means: How often do you request and open new accounts that result in serious investigation of your credit report.

How to master it: When looking to apply for new credit, consider whether a physical or indirect investigation will be carried out. Serious Investigations Can Lower Your Credit Rating By A Few Points, although your score should recover quickly.

You can check if you prequalify for credit cards and loans without hurting your credit score. This allows you to search for the best deals without hurting your credit score.

5. Credit mixing

What this means: The variety of credit products you have available, including credit cards (a type of revolving credit), Payment loans, auto loans, mortgages and student loans.

How to master it: While there isn’t a clear answer to how many types of credit card accounts you should have, it’s a good idea to have more than one type. This can include a credit card as well as a car loan, mortgage, or installment loan for your phone, to name a few.

At the end of the line

No matter your credit rating, either Wrong, fair / average, Well Where excellent – you should try to master the five factors of credit. If you follow the tips we have provided above, you can improve your credit score over time and maintain a healthy credit history. And when you get a good or great credit score, you can take advantage of many financial steps, like buying a home or buying a car.

Learn more about credit scores:

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.

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